NZ dollar falls to 4-week low as traders increase bets for rate cut in November

Monday 26th September 2016

The New Zealand dollar fell to a four-week low as traders increased bets the Reserve Bank will cut the official cash rate in November after the bank last week cited "sustained" weakness in inflation while flagging the need for further easing.

The kiwi dropped to 72.28 US cents as at 8am in Wellington, having touched 72.22 cents in late New York trading on Friday, the lowest since Aug. 31 and down from 72.74 cents in Wellington at the end of last week. The trade-weighted index declined to 76.87 from 76.90 in New York and from 77.20 in late Asian trading on Friday.

Last Thursday, RBNZ governor Wheeler kept the OCR at 2 percent yesterday, saying more easing was on the cards to get inflation back within the target band of 1-to-3 percent. Government data show consumer prices rose an annual 0.4 percent in the June quarter, the seventh quarter below the Reserve Bank's target band. Traders are pricing in a 74 percent chance of a quarter-point cut in the OCR to 1.75 percent in November, up from 56 percent just before Thursday’s OCR review.

"The kiwi has traded poorly since the RBNZ’s freshened signal that it is likely to cut in November, but a quieter local calendar and likely softer USD should help it steady above 72 US cents," said Imre Speizer, senior market strategist at Westpac Banking Corp. By year-end there was "a case for a correction towards 70 cents if the Fed tightens in December as we expect."

The economic event calendar is relatively quiet this week, with merchandise trade for August due out today and expected to show a deficit of $735 million, a deterioration from a deficit of $433 million in July.

The kiwi decreased to 4.8287 Chinese yuan from 4.8317 yuan on Friday in New York and slipped to 64.35 euro cents from 64.50 cents. It dipped to 55.79 British pence from 55.84 pence and was little changed at 73.10 yen from 73.18 yen. The kiwi fell to 94.87 Australian cents from 94.96 cents.

BusinessDesk.co.nz

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