The New Zealand dollar retreated on Wednesday after the central bank said it could slash cash rates to below zero and engage in asset buying programmes in case of a major crisis, with the Australian currency falling in sympathy.
There is no imminent prospect of using such measures, Reserve Bank of New Zealand (RBNZ) Assistant Governor John McDermott told Bloomberg, but added "the probability of needing them at this point in the cycle is higher than it ever was in history."
The kiwi dollar NZD=D4 fell more than three quarters of a U.S. cent to a session low of $0.6894, from a one-week top of $0.6974 touched on Tuesday.
The RBNZ last cut rates to a record low 1.75 percent in late 2016 and has repeatedly indicated the need for policy to remain stimulatory as inflation remains tepid.
In its research paper, the RBNZ said while there was further room to ease policy if needed, the bank was not currently projecting a "significant decrease" in the cash rate.
Across the Tasman Sea, the Australian dollar AUD=D4 failed at critical chart resistance of around $0.76 touched on Tuesday to hit a session low of $0.7535.
The antipodean currencies also got a setback after U.S. President Donald Trump tempered optimism over progress made so far in easing tariff tensions with China. Trump said on Tuesday he was not pleased with recent trade talks between the two countries.
Further weighing on risk assets, Trump said there was a "substantial chance" his summit with North Korean leader Kim Jong Un will not take place as planned on June 12 amid concerns Kim is resisting giving up his nuclear weapons.
The Aussie is often played as a liquid proxy for risk and the country's economic fortunes are closely tied to global growth.
"The antipodean weakness seems to be in large part a reflection of the sour regional risk mood," said Sean Callow, currency strategist at Westpac.
"The Aussie and kiwi are the worst on ground in the G-10 today despite only minor negative news," Callow said referring to the group of 10 advanced countries. "We saw a mild downside surprise on Australian construction data and some theories about radical easing measures from the RBNZ."
Data out earlier showed Australia's construction spending rose by a smaller-than-expected 0.2 percent last quarter when analysts are looked for a rise of 1 percent.
New Zealand government bonds
0#NZTSY= rose, sending yields about 2 basis points lower.Australian government bond futures gained, with the three-year bond contract YTTc1 up 1.5 ticks at 97.770. The 10-year contract YTCc1 rose 2 ticks to 97.145.
