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NZ dollar in 'holding pen' ahead of tomorrow's RBA announcement

Monday 1st March 2010

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The New Zealand dollar will likely stay in its current ranges ahead of tomorrow’s Reserve Bank of Australia meeting, with the market split on whether Governor Glenn Stevens will hike interest rates again in the biggest market for kiwi exports. 

The market is pricing in a 50:50 chance of a 25 basis point rate hike by the RBA tomorrow, though economists surveyed by Reuters are leaning in favour of a hike. If Stevens decides to lift interest rates to 4% tomorrow, that will increase the yield differential between the trans-Tasman neighbours and should work to damp demand for the kiwi dollar against its Australian counterpart. New Zealand central bank Governor Alan Bollard has indicated he won’t move interest rates until the middle of the year, and the market predicts he will lift the official cash rate 145 basis points, according to the Overnight Index Swap curve, the lowest level this year.  

“The market is pretty much split 50:50 – either way we’re going to get a reaction (to the RBA decision) that will wash through to the kiwi,” said Khoon Goh, senior markets economist at ANZ National Bank. “A lot of people clearly see 70 US cents as the topside cap in the kiwi.”  

The kiwi rose to 69.81 US cents from 69.40 cents on Friday in New York, and gained to 64.57 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 64.42. It slipped to 61.13 yen from 61.97 yen on Friday, and dropped to 77.73 Australian cents from 77.95 cents. It increased to 45.90 pence from 45.43 pence last week, and was unchanged at 51.13 euro cents.  

Goh said the currency may trade between 69.50 U.S. cents and 70.30 cents today with Chinese PMI data the only real event risk which could push Asian equities up today.  

Statistics New Zealand will release January’s migration data today while ANZ Bank puts out its commodity price index this afternoon as well.  

Stocks in the US were reasonably lacklustre, with the Standard & Poor’s 500 index up 0.1%, after European markets pushed higher on the back of rumours a 25 billion euro bailout package for Greece.  

“At the moment it’s all rumours and hearsay that the market’s trading on,” Goh said.  

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