NZ dollar heads for modest weekly decline as global outlook trumps RBNZ's looming review

Friday 22nd April 2016

The New Zealand dollar is heading for a 0.1 percent weekly decline, having given up the gains that pushed it to a 10-month high, amid speculation rising commodity prices and an improving global economy argues for higher interest rates from the Federal Reserve.

The kiwi traded at 69.09 US cents as at 5pm in Wellington, down from 69.73 cents late yesterday and little changed from 69.26 cents this time last week. The trade-weighted index fell to 72.76 from 73.19 yesterday.

While traders are divided on whether the Reserve Bank will cut the official cash rate to a record low 2 percent on April 28 or wait until the full monetary policy statement in June to move, they're also questioning how much impact the central bank can expect to have when financial markets are focused on the global economy and the Fed. The April 28 review comes on what will be super-Thursday for the market, with the Federal Reserve due to announce its policy position at 6am - ahead of the RBNZ at 9am, followed by the Bank of Japan.

"The market is debating whether local monetary policy can and will have an impact when the focus is on what the Fed can and needs to do," said Sam Tuck, senior foreign exchange strategist at ANZ Bank New Zealand. "The global economy continues to improve and commodity prices are rising. That does actually mean the US may be able to normalise policy."

That makes an assessment of the kiwi dollar more complex because so-called commodity currencies typically rise with prices of raw materials and economic growth, whereas now those factors are seen as potentially spurring the Fed into action and driving up the greenback, which had been tracking at an eight-month low in April because the Fed wasn't expected to rush to hike rates.

Overnight, European Central Bank president Mario Draghi said he believed the ECB's current policy, which has interest rates at zero, was appropriate.

The New Zealand dollar decreased to 89.22 Australian cents from 89.32 cents yesterday, fell to 61.18 euro cents from 61.74 cents and dropped to 48.17 British pence from 48.63 pence. It declined to 76.01 yen from 76.48 yen and fell to 4.4848 yuan from 4.5161 yuan.

The two-year swap rate was unchanged 2.2 percent and the 10-year swaps gained 2 basis points to 2.96 percent.

BusinessDesk.co.nz

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