NZ dollar gains as US debt ceiling deadline approaches, RBA leaves door open for rate cut

Tuesday 15th October 2013

The New Zealand dollar gained as the deadline looms for US politicians to cut a deal to avoid a potential default and after minutes of the last Reserve Bank of Australia review left the door open for another rate cut.

The kiwi rose to 83.86 US cents at 5pm in Wellington from 83.67 cents at 8am and 83.31 cents yesterday. The trade-weighted index gained to 77.76 from 77.34.

Investors are becoming more optimistic US legislators will reach a compromise over the stalled Federal budget, with a Thursday deadline looming for a deal to be reached. If the Republican-controlled Congress and Democrat President Barack Obama can't reach a deal by then, the US faces defaulting on its sovereign debt obligations if it can't raise its debt limit.

"People do seem to think they're going to do something - what that optimistic is placed on is not exactly clear," said Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. "The Aussie and the kiwi managed to lift against the US dollar, and both are near highs for quite a while."

Minutes to the Oct. 1 RBA meeting showed the central bank's board is still open to another rate cut if need be, though the "substantial degree of policy stimulus" still needed more time for them to gauge the effects. The kiwi was little changed at 88.01 Australian cents from 87.96 cents yesterday.

New Zealand central bank deputy governor Grant Spencer today said wage and price pressure was inevitable from the massive residential construction programme set for Christchurch and Auckland over the coming three years. If that feeds into broader inflation, interest rates would come under pressure and the Reserve Bank already expects to start hiking the benchmark rate next year.

Government figures tomorrow are expected to show New Zealand's consumer prices rose at an annual pace of 1.3 percent in the third quarter from 0.7 percent in the second. Inflation has been below the central bank's target band of between 1 percent and 3 percent for the past year as the strong kiwi dollar keeps a lid on imported prices.

The local currency gained to 82.56 yen at 5pm in Wellington from 81.89 yen yesterday and rose to 61.83 euro cents from 61.42 cents. It increased to 52.42 British pence from 52.12 pence yesterday.

BusinessDesk.co.nz

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