NZ dollar little changed ahead of RBNZ rate review

Wednesday 11th September 2013

The New Zealand dollar was little changed ahead of tomorrow's rate review by the central bank, which will give analysts their first insight into the likely impact of home loan restrictions.

The kiwi traded at 80.37 US cents at 5pm in Wellington from 80.64 cents at 8am, little changed from 80.44 cents yesterday. The trade-weighted index was 75.74 from 75.72 yesterday.

Central bank governor Graeme Wheeler is expected to keep the official cash rate unchanged at 2.5 percent tomorrow in his first review since announcing restrictions on low equity house lending will take effect from October. When announcing the roll-out of the macro-prudential tools last month, Wheeler said they would let him keep interest rates lower for longer, allowing him to react to a bubbling housing market without fuelling demand for what he calls an overvalued currency.

"He's probably going to talk the currency down, we presume," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional. "If he says nothing untoward, you'll probably see the kiwi pop towards 82 US cents."

Kelleher said Wheeler's restrictions on high loan-to-value ratio lending might be worth 25 to 50 basis points of hikes, doing "a fair bit of work for him."

In its June forecasts, the Reserve Bank expected the 90-day bank bill rate, often seen as a proxy for the OCR, to start rising in June next year before reaching 4.2 percent in March 2016.

The kiwi fell to 86.58 Australian cents at 5pm in Wellington from 86.83 cents yesterday, and advanced to 80.76 yen at 5pm in Wellington from 80.13 yen at 5pm yesterday. The local currency was unchanged at 60.63 euro cents and edged down to 51.11 British pence from 51.22 pence.

BusinessDesk.co.nz

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