NZ dollar TWI extends fall on prospect of RBNZ warning

Friday 15th July 2016

The New Zealand dollar continued its decline on a trade-weighted basis after the Reserve Bank surprised traders saying it would give an updated assessment of the economy next week, stoking expectations it's laying the groundwork for a rate cut next month.

The trade-weighted index fell to 76.62 at 8am in Wellington from 76.81 yesterday and 77.57 before the RBNZ notice. The kiwi was little changed at 71.98 US cents from 72.04 cents yesterday.

Traders are pricing in a 69 percent chance the Reserve Bank will cut the official cash rate to 2 percent at its next policy review on Aug. 11 after the bank said it will “issue a brief update on its economic assessment” on July 21 because of the longer gap between meetings in the bank’s new timetable. Before the notice traders had priced in a 40 percent chance of a cut.

The kiwi dollar has been trading above the RBNZ's projections as New Zealand's relatively attractive interest rates offer better returns than elsewhere, while its outlook for economic growth and stable government are seen as a boon in a volatile environment since the UK voted to leave the European Union.

"The natural conclusion the market took was that the bank was not happy with current market conditions," Bank of New Zealand currency strategist Jason Wong said in a note. "The weaker NZD is expected to be sustained heading into next week’s highly anticipated statement and, if the bank has learnt anything from previous communication missteps, then it should be able to deliver a further blow to the NZD."

The kiwi fell to a two-week low 53.95 British pence from 54.56 pence yesterday after the Bank of England kept its benchmark rate unchanged at 0.5 percent, surprising markets which had been expecting a cut. Still, the central bank indicated a reduction was likely in August.

The local currency rose to 75.86 yen from 75.42 yen yesterday on the prospect of the Bank of Japan buying perpetual bonds with no maturity date, known as helicopter money, in an effort to overcome deflation.

The local currency edged down to 64.71 euro cents from 64.88 cents yesterday and fell to 4.8083 Chinese yuan from 4.8181 yuan yesterday. It dropped to 94.20 Australian cents from 94.69 cents yesterday.

BusinessDesk.co.nz

Comments from our readers

No comments yet