NZ dollar gains as traders eye RBNZ's review, global risk appetite picks up

Monday 9th June 2014

The New Zealand dollar gained on speculation the central bank will reiterate its projection for rising interest rates at this week's review against a backdrop of a strengthening domestic growth and signs of global growth that are encouraging investors to take on risk.

The kiwi rose to 85.13 US cents from 84.89 cents at 8am in Wellington and up from 85.01 cents at the New York close on Friday. The trade-weighted index rose to 79.36 from 79.11 on Friday.

The Reserve Bank is expected to raise the official cash rate a quarter point to 3.25 percent when releasing the monetary policy statement on Thursday but there has been speculation he may soften the track of future hikes to the OCR, signalling borrowing costs don't need to rise as much as it has flagged. That leaves open a risk governor Graeme Wheeler he will reiterate the interest rate track given in March, stoking gains in market rates and the currency.

"Market pricing is quite a bit below where the RBNZ's track is," said Mark Johnson, senior client adviser at OMF. "The Reserve Bank is trying to prep the market for a normalisation of rates."

The March MPS projected 90-day bank bills would be at 4.3 percent in the first quarter of 2015, while market pricing puts them at 3.96 percent, Johnson said.

Still, the central bank may also repeat his view that the kiwi dollar is unsustainably high and can't keep appreciating. Wheeler and Reserve Bank of Australia governor Glenn Stevens, both battling high currencies, may be hoping the greenback eventually comes to their aid amid signs the US economy is recovering. That was reinforced by US non-farm payrolls data on Friday that showed the world's biggest economy added more than 200,000 jobs for the fourth straight month, helping drive stock benchmarks on Wall Street to a record close.

Stocks continued to rally in Asia as figures showed Japan's gross domestic product grew an annualised 6.7 percent in the first quarter, faster than expected.

The New Zealand dollar was little changed at 91.01 Australian cents from 90.95 cents on Friday. Australian banks are closed for the Queen’s Birthday public holiday.

The local currency gained to 62.40 euro cents from 62.14 cents on Friday and edged up to 50.65 British pence from 50.48 pence. The kiwi rose to 87.29 yen from 86.83 yen on Friday.

BusinessDesk.co.nz

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