NZ dollar holds gains ahead of line-call RBNZ rate review

Wednesday 10th June 2015

The New Zealand dollar held gains in local trading, with investors divided on whether Reserve Bank governor Graeme Wheeler will cut interest rates to stimulate the economy and lift inflation from its near-zero level in tomorrow morning's three-monthly monetary policy statement.

The kiwi traded at 71.84 US cents at 5pm in Wellington from71.31 cents at 8am, up from 71.08 cents yesterday. The trade weighted index increased to 74.71 from 74.42.

Traders are pricing in a 40 percent chance Wheeler will cut the 3.5 percent official cash rate by 25 basis points, according to the Overnight Index Swap curve. Measures by the Reserve Bank and government to cool a red-hot Auckland property market were seen as giving Wheeler some room to cut rates as inflation tracks below the bank's target band.

"I think they won't cut. It would add too much fuel to the property market, which is what they're trying to avoid," said Grant Bodle, senior FX dealer at HiFX in Auckland. "If they cut you'll see the kiwi sold off again, and if they don't, which is what we're picking, I would expect a 30 to 40 point bounce."

Government data today showed core retail spending on electronic cards rose 0.4 percent in April, with increased buying of consumable and durable products offsetting weakness elsewhere.

New Zealand's two year swap rate slipped to 3.33 percent at 5pm in Wellington from 3.35 percent yesterday, and the 10 year swap rate advanced to 4.13 percent from 4.06 percent.

The kiwi dropped to 87.97 yen at 5pm in Wellington from 88.52 yen yesterday after Bank of Japan governor Haruhiko Kuroda told policymakers the nation's real effective exchange rate, which adjusts for inflation and trade, was very weak following his money printing programme to reinvigorate the world's third biggest economy.

The local currency gained to 92.92 Australian cents from 92.40 cents yesterday after Reserve Bank of Australia governor Glenn Stevens said the bank was open to a third rate cut this year, but was unsure how effective it would be.

The kiwi rose to 4.4363 Chinese yuan from 4.4094 yuan yesterday, and gained to 63.29 euro cents from 62.84 cents. It was little changed at 46.31 British pence from 46.31 pence.

BusinessDesk.co.nz

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