WELLINGTON, Sept 10 (Reuters) - The New Zealand dollar tumbled on Thursday after the Reserve Bank of New Zealand highlighted the need for the domestic currency to fall further, while cutting its official interest rate and signalling another easing in the coming months.
The kiwi NZD=D4 fell more than 2 percent to a session low of $0.6274 after the RBNZ reduced its benchmark rate by 25 basis points to 2.75 percent, as widely expected, and flagged the likelihood of more cuts if economic growth continues to slow. ID:nW9N0Z202A
The RBNZ acknowledged that a sharp depreciation in the kiwi in past months was providing some support to the economy, and forecast the kiwi would fall an additional 5 percent on a trade-weighted basis over the next year.
"They talked the currency lower still, they painted the impression that they could cut rates lower if they needed," said Tim Kelleher, head of institutional FX sales at ASB Bank in Auckland.
Losses in the kiwi weighed on the Australian dollar AUD=D4 , which fell 0.5 percent to a session low of $0.6976.
The kiwi fell broadly, sagging nearly 2 percent against the yen to trade around 75.50 yen NZDJPY=R while also falling sharply against the Australian dollar AUDNZD=R , the euro EURNZD=R and other currencies.
As a result, its trade-weighted index fell 1.2 percent to 68.44 =NZD .
Further losses in the kiwi were limited by demand from regional exporters below $0.6300, market participants said, although the longer-term outlook for the currency is lower, with many expecting a fall towards $0.6000 before the end of the year.
New Zealand interest rate futures 0#NBB: and government bonds 0#NZTSY= rose after the RBNZ announcement, with government bond yields sliding as much as 6 basis points at the front end of the curve.
Australian government bond futures were also higher, with the three-year bond contract YTTc1 up 0.030 at 98.165. The 10-year contract YTCc1 edged up 0.0425 to 97.2750.
(Editing by Richard Pullin)