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NZ dollar dribbles lower ahead of RBA decision

Tuesday 1st November 2011

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The New Zealand dollar gave up some gains against the yen and crept up against the greenback as the focus turned to a Reserve Bank of Australia policy decision this afternoon.

The kiwi eased to 63.31 Japanese yen at 8am from the 64.10 yen level it surged to yesterday when the Bank of Japan intervened to knock the yen lower. It rose to 81.14 US cents from 80.98 cents at 5pm yesterday but was off the 81.40 cent high in overnight trading.

The RBA is expected to cut its benchmark interest rate by 25 basis points to 4.5 percent, making it a busy day for markets as the nation stops for the Melbourne Cup horse race. Analysts will be looking to see whether Governor Glenn Stevens is keen to keep cutting.

Richard Franulovich, senior currency strategist at Westpac Banking in New York, said the Bank of Japan had probably been lurking in the shadows overnight but there had not been any overt intervention. The kiwi had consolidated overnight. "It is now just dribbling lower," he said.

The RBA decision today would absolutely be main focus of antipodean markets, he said.

The kiwi rose as high as 64.54 yen yesterday, the highest since Sept. 9, after the Bank of Japan embarked made its third bid to devalue its currency this year.

Japan’s central bank stepped into currency markets after the yen hit a fresh post-World War II record 75.35 per US dollar, just two months after its biggest intervention in seven years. Japan’s Finance Minister Jun Azumi told reporters he’ll continue to intervene until he’s satisfied, and traders are speculating that’s at around 80 yen per US dollar.

The greenback’s strength against the yen fed into other cross-rates, with the trans-Tasman currencies falling against the US dollar.

Still, the US dollar gave up some gains after the Bank of Japan’s intervention sent it higher, and the US equity market was weak as the euphoria over Europe's latest debt package faded. Investors started to doubt the detail and likely follow through to moves agreed last weekend to address the European sovereign debt crisis.  Greece is to hold a referendum on the new European Union aid package and Italy is increasingly worrying investors.

The actions of central banks will be a theme this week with the Federal Market Open Committee contemplating possible further quantitative measures on Thursday.

New Zealand’s Reserve Bank kept the official cash rate on hold at 2.5 percent last week, with Governor Alan Bollard a bit more upbeat than the market was expecting, by keeping a bias towards higher rates next year.

The first tranche of local third-quarter employment comes out today, with total filled jobs expected to have dropped 0.6 percent in the three months ended Sept. 30, while the labour cost index is forecast to have grown 0.6 percent in the period, according to a Reuters survey.

The kiwi eased to 76.58 Australian cents from 76.88 cents yesterday. It rose to 58.27 euro cents from 57.73 cents, and declined to 50.30 British pence from 50.70 pence.

The trade-weighted index was little changed at 70.42 from 70.44.


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