NZ dollar gains as RBNZ's bid to talk down currency falls short of expectations

Thursday 22nd June 2017

The New Zealand dollar rose after the Reserve Bank kept the official cash rate at 1.75 percent and efforts to talk down recent strength in the currency was seen as relatively soft.

The kiwi gained to 72.52 as at 5pm from 72.25 US cents as at 8am in Wellington and 72.16 cents yesterday. It rose to 96.01 Australian cents from 95.49 cents.

Central bank governor Graeme Wheeler kept the benchmark rate unchanged citing well-anchored inflation expectations, and tried to talk down a 3 percent increase in the trade-weighted increase over the past six weeks, which he said "would help rebalance the growth outlook towards the tradables sector". Some economists anticipated Wheeler would try to jawbone the currency lower, however his efforts fell short of what investors expected.

"The market was short kiwi-Aussie cross going into the statement and was certainly looking for Wheeler to make more aggressive comments about the currency," and that was enough to propel the kiwi higher, said Martin Rudings, senior dealer foreign exchange at OMF in Wellington.

UBS New Zealand economist Robin Clements said the central bank's comments on the dollar were "understandable, but hardly threatening" while Westpac Banking Corp acting chief economist Michael Gordon said the bank didn't "express any significant discomfort with the New Zealand dollar."

The trade-weighted index was at 78.25 from 77.94 yesterday and is around 3 percent higher than what the bank was projecting for the June quarter.

Both Clements and Gordon also said markets had been toying with the idea that the central bank might sound a more dovish note by saying that rate hikes were just as likely as rate cuts. However, Wheeler reiterated the statement he made in May, stating "monetary policy will remain accommodative for a considerable period".

Rudings said the kiwi would likely attract sellers around the 96.30 Australian cents mark and would drift lower with a lack of data on the horizon domestically and in Australia.

The kiwi was at 57.22 British pence from 57.12 pence and traded at 80.55 yen from 80.31 yen. It rose to 4.9530 yuan from 4.9281 yuan and was at 64.91 euro cents from 64.83 cents.

New Zealand's two-year swap rate was unchanged at 2.20 percent while the 10-year swap rate was unchanged at 3.14 percent.

(BusinessDesk)

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