NZ dollar holds gains after RBNZ signals it's done with rate cuts for now

Friday 11th December 2015

The New Zealand dollar held onto its gains overnight as traders were lured by the higher yields on offer after the Reserve Bank yesterday signalled interest rates are likely to remain on hold.

The kiwi edged up to 67.46 US cents at 8am in Wellington, from 67.38 cents at 5pm yesterday. The trade-weighted index advanced to 73.21 from 73.02 yesterday.

The local currency soared more than a cent against the greenback yesterday after the central bank signalled its quarter point reduction in interest rates to 2.5 percent was likely to be the last in the current cycle. That surprised some traders who had expected further reductions next year, and increased the lure of local yields compared against many other countries with lower interest rates.

"The Reserve Bank delivered an easing yesterday, but in signalling that its central scenario is for stability, it freed up the New Zealand dollar to move higher with the strengthening domestic economy," ANZ Bank New Zealand chief economist Cameron Bagrie and senior foreign exchange strategist Sam Tuck said in a note. "The allure of yield remains on offer, particularly now with the Reserve Bank parked on the sidelines."

ANZ says the kiwi is likely to trade between 67.10 US cents and 68.30 cents today, and may be supported by strong local data.

In New Zealand today, the BNZ-BusinessNZ performance of manufacturing index for November is scheduled for release at 10:30am, followed by November food prices at 10:45am, and the ANZ-Roy Morgan consumer confidence survey at 1pm. Data on non-resident bond holdings for November is published at 3pm.

The New Zealand dollar advanced to 92.51 Australian cents from 92.31 cents yesterday as traders mulled yesterday's stronger-than-expected Australian jobs data, in what has been a volatile series.

The local currency edged up to 44.48 British pence from 44.44 pence yesterday after the Bank of England kept policy unchanged at its review yesterday.

The kiwi gained to 61.65 euro cents from 61.22 cents yesterday, rose to 4.3419 yuan from 4.3381 yuan, and was little changed at 81.96 yen from 81.93 yen.

Tonight, the focus will be on US retail sales data and over the weekend Chinese economic data will provide further clues as to how New Zealand's largest trading partner is tracking.

BusinessDesk.co.nz

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