NZ dollar pares gain as markets prepare for RBNZ to cut rates

Wednesday 22nd July 2015

The New Zealand dollar pared its gain in local trading as investors prepare for tomorrow's official cash rate review where Reserve Bank governor Graeme Wheeler is expected to lower the benchmark rate.

The kiwi traded at 66.17 US cents at 5pm in Wellington from 66.32 cents at 8am, and 65.89 cents yesterday. The trade-weighted index was almost unchanged at 70.20 from 70.21 yesterday.

Traders have fully priced in a quarter-point cut to the OCR tomorrow, and see an outside chance Wheeler will cut more steeply as he tries to revive an ailing dairy sector where milk prices have slumped faster than the kiwi. Wheeler embarked on an easing cycle last month as persistently low inflation freed him up to reduce the cash rate.

"Dairy is a significant part, and such an important part, of the economy that I don't feel the RBNZ has any intention of not delivering at least the minimum to what the market expects tomorrow," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "I would hope to see the kiwi track back down to the lower end of the channel tomorrow."

OMF's Ive said he expects Wheeler will cut the rate by 25 basis points to 3 percent, holding off from a sharper cut until a full monetary policy statement where he would be better able to explain his decision.

New Zealand's two-year swap rate slipped to 2.86 percent at 5pm in Wellington from 2.87 percent yesterday, and the 10-year swap rate decreased to 3.72 percent from 3.73 percent.

The kiwi fell to 89.17 Australian cents from 89.60 cents yesterday after Bureau of Statistics figures showed inflation rose 0.7 percent in the June quarter on more expensive petrol prices, and after Reserve Bank of Australia governor Glenn Stevens left open the door to lower interest rates across the Tasman.

The local currency increased to 4.1079 Chinese yuan at 5pm in Wellington from 4.0921 yesterday, and edged lower to 81.83 yen from 81.99 yen. It fell to 60.46 euro cents from 60.91 cents, and was little changed at 42.48 British pence from 42.34 pence.

BusinessDesk.co.nz

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