NZ dollar falls ahead of RBNZ review that may include lower bank bill track, kiwi comments

Wednesday 9th March 2016

The New Zealand dollar fell against the greenback amid expectations tomorrow's Reserve Bank statement will anticipate a decline in short-term interest rates and comment that the kiwi dollar is higher than warranted given weak commodity prices and moderate domestic economic growth.

The kiwi fell to 67.19 US cents as at 5pm in Wellington, from 67.69 cents yesterday. The trade-weighted index declined to 72.35 from 72.76.

While most traders don't expect a cut to the 2.5 percent official cash rate with the monetary policy statement tomorrow, there is almost 100 percent expectation that Governor Graeme Wheeler will lower the OCR in June. Fonterra Cooperative Group's cut to its milk payout forecast this week adds to the prospects that farmers will curtail spending and the effects will be felt throughout the wider economy, which may trump concerns that lower borrowing costs will inflame Auckland's housing market.

"There's still an outside chance that Wheeler will cut - it could be the path of least regret," said Martin Rudings, a senior dealer at OMF. "At the very least I think he will lower the bank bill track to 2 percent from 2.5 percent."

Rudings said a rate cut isn't likely to push mortgage rates down much from already low levels.

Wheeler has been able to "look through" one off impacts on inflation that slowed the pace to just 0.1 percent last year, such as the decline in the price of crude oil. The December MPS projected annual inflation to undershoot the 2 percent midpoint of the central bank's 1 percent-to-3 percent target range through until December 2017. Last month's RBNZ Survey of Expectations shows respondents have the lowest expectations for inflation in 20 years.

The New Zealand dollar declined to 90.69 Australian cents from 91.10 cents yesterday, fell to 75.81 yen from 76.45 yen, and declined to 4.3849 from 4.4037 yuan. It fell to 61.35 euro cents from 61.42 cents.

The two-year swap rate rose 2 basis points to 2.43 percent and 10-year swaps rose 2 basis points to 3.07 percent.

BusinessDesk.co.nz

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