NZ dollar edges up as traders place bets ahead of Reserve Bank interest rate decision tomorrow

Wednesday 10th June 2015

The New Zealand dollar edged up ahead of the Reserve Bank's monetary policy statement tomorrow, with opinion divided over whether the benchmark interest will be cut or remain on hold.

The kiwi advanced to 71.31 US cents at 8am in Wellington, from 71.08 cents at 5pm yesterday. The trade-weighted index gained to 74.70 from 74.42 yesterday.

Traders are fine tuning their positions ahead of the Reserve Bank's decision tomorrow. Six of 16 economists expect RBNZ governor Graeme Wheeler to reduce the official cash rate by 25 basis points to 3.25 percent amid low inflation, weak dairy prices, declining business and consumer confidence and following additional measures to curb Auckland's bubbling housing market. Still, others say the conditions have not yet been met to cut rates. Most are betting Wheeler will emphasise his easing bias, which has helped weaken the kiwi by 7.5 percent over the past 30 days, making it the worst performing major currency.

"Recent economic data releases argue in favour of looser policy from the RBNZ," Jane Foley, senior currency strategist at Rabobank International in London, said in a note. "Although expectations of a rate cut from the RBNZ have slipped over the past week or so, confirmation of steady rates tomorrow night are likely to support the New Zealand dollar. That said, we would expect Governor Wheeler to make his easing bias clear and for any upside in NZD/USD to be short-lived."

Traders are currently placing a 40 percent chance on the RBNZ reducing rates tomorrow, down from a 54 percent chance on May 29, according to the overnight index swap curve.

Rabobank's Foley expects the kiwi to edge lower to 69 US cents over the next six to nine months, as the RBNZ cuts rates during the second half of this year and as the greenback advances as the Federal Reserve moves to hike rates in December.

In New Zealand today, electronic card transaction data for May is scheduled for release at 10:45am, giving an indication of how second-quarter growth is tracking.

The local currency advanced to 92.78 Australian cents from 92.40 cents yesterday ahead of a report on Australian consumer confidence and a speech by Reserve Bank of Australia governor Glenn Stevens to the Economic Society of Australia in Brisbane.

The kiwi rose to 63.23 euro cents from 62.83 cents yesterday, advanced to 88.66 yen from 88.52 yen was little changed at 46.35 British pence from 46.31 pence.

BusinessDesk.co.nz

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