NZ dollar seen weakening on central bank displeasure as election looms

Monday 8th September 2014

The New Zealand dollar was little changed from New York on Friday and may fall amid speculation the Reserve Bank will use its monetary policy statement on Thursday to repeat that the currency in unjustifiably high, while trimming the track of interest rates.

The kiwi traded at 83.15 US cents at 5pm in Wellington little changed from the start of the day and from 83.26 cents at the New York close. The trade-weighted index gained to 79.01 from 78.77 on Friday.

Reserve Bank governor Graeme Wheeler is widely expected to keep the official cash rate at 3.5 percent this week while lowering the track of interest rates to reflect an economy that's producing mixed data, with still-tame inflation. He raised the OCR a quarter point in July, while signalling a pause in the tightening cycle and hinted at intervention in currency markets by saying the kiwi's strength was "unjustified and unsustainable".

"Our call is it is heading to 83 US cents over the next couple of weeks," said Imre Speizer, senior market strategist at Westpac Banking Corp. "There's a good chance he will say the kiwi is still too high, similar to July when he warned of intervention. He may say it needs to be closer to fundamental fair value."

Nine out of 10 currency strategists and traders in a BusinessDesk survey today say the kiwi dollar will fall this week, having retreated from its 88.35 US cent high in July in the face of weaker prices for major export commodities such as logs and milk and inflation that's tamer than the quarterly headline numbers suggest.

Speizer said against signs of a weaker economy, fixed mortgage rates have fallen and inbound migration is booming, which could stoke the housing market and stir demand respectively. Even though Wheeler may try to jawbone the currency lower, he may also reduce the track of 90-day bank bills by just 10-20 basis points compared to some 65 basis points priced into rates currently.

The kiwi traded at 51.30 British pence from 50.78 pence on Friday. It was at 88.73 Australian cents from 88.66 cents on Friday, and was at 64.24 euro cents from 64.05 cents. The kiwi rose to 87.36 yen from 87.23 yen.

BusinessDesk.co.nz

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