NZ dollar holds above 70 US cents ahead of RBNZ interest rate decision

Thursday 9th June 2016

The New Zealand dollar held above 70 US cents ahead of the Reserve Bank interest rate decision today, where the benchmark is expected to remain on hold.

The kiwi touched a month high of 70.27 US cents early this morning and was trading at 70.13 cents at 8am in Wellington, from 70.02 cents at 5pm yesterday. The trade-weighted index edged up to 74.46 from 74.39 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, touched a month low of 93.425 early this morning as traders pull back their bets for an imminent US interest rate hike following last week's disappointing US labour market data. Locally, the kiwi is being bolstered by improved commodity prices overnight and expectations that Reserve Bank governor Graeme Wheeler will refrain from cutting interest rates until later in the year, underpinning demand for the currency. The RBNZ's monetary policy statement is released at 9am.

"There’s been little news over the past 24 hours but a key theme is the lower-for-longer global interest rate environment and soft US dollar driving up commodity prices," Bank of New Zealand currency strategist Jason Wong said in a note. "In this context, it’s no surprise that the NZ dollar has broken through the 0.70 mark. While there is technical resistance at 0.7055 for the NZ dollar, that won’t count for much as the focus turns to the RBNZ’s MPS this morning. The bank will have to pull a rabbit out of a hat to prevent a further push higher, although we wouldn’t be chasing the currency higher from here, following the decent bounce over the past week and a bit."

The trade-weighted index touched 74.54 this morning, the highest level this year and ahead of the Reserve Bank's expectation for the TWI to average 70.9 in the second quarter.

"The governor will no doubt be champing at the bit to talk the currency lower," said BNZ's Wong.

Governor Wheeler will hold a press conference to explain his decision at 11am and appear before parliament's finance and expenditure select committee at 1pm.

The New Zealand dollar was little changed at 93.78 Australian cents from 93.80 cents, at 61.54 euro cents from 61.56 cents, and at 4.6005 yuan from 4.6004 yuan

It gained to 48.35 British pence from 48.11 pence, and to 75.06 yen from 74.91 yen.

BusinessDesk.co.nz

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