NZ dollar falls vs Australian dollar, greenback on speculation RBNZ could cut next week

Thursday 21st April 2016

The New Zealand dollar fell from a 10-month high against the greenback and dropped versus the Australian dollar amid speculation the Reserve Bank may try to drive the kiwi lower by cutting rates next week when most in the market expect it to wait until June.

The kiwi traded at 69.72 US cents at 5pm in Wellington from 70.08 cents late yesterday, when it touched a 10-month high of 70.54 cents. The local currency fell to 89.27 Australian cents from 90.01 cents yesterday.

There is currently a 41 percent chance that Governor Graeme Wheeler will cut the official cash rate to 2 percent at the April 28 review while the odds of the OCR being unchanged are 59 percent, based on the overnight interest swap curve. Bets have swung between a cut and no cut in recent days but are currently in favour of a June 9 cut, when the bank releases its monetary policy statement.

"A few players are coming around to the thought that with the kiwi up here the RBNZ will try to surprise the market and go next week, and try to get the kiwi a little bit lower," said Alex Hill, head of corporate dealing at NZForex. "If they want to have the currency affected the best thing would be to catch the market on the hop."

The New Zealand dollar has strengthened more than the Reserve Bank expected in its most recent projections. The trade-weighted index, its preferred currency measure, was recently at 73.17, down from 73.48 yesterday but still 3.2 percent above the 70.90 average the central bank projected for the second quarter in its March monetary policy statement.

Hill said the kiwi's decline in the past 24 hours has pushed it back to levels where it has some support "before having another crack at its highs versus the US dollar."

"Some of the positives still apply - US equity markets continue to soar, commodities are up" and there's a growing sense that the Federal Reserve won't rush to hike interest rates, he said.

Ahead of next week's interest rate review, traders will be watching for the European Central Bank's policy review overnight. The kiwi didn't move much after figures showed net inbound migration rose to a new record of 67,600 in the 12 months through March 31 or after the ANZ-Roy Morgan consumer confidence index rose in April.

The kiwi was little changed at 61.68 euro cents and slipped to 48.60 British pence from 48.78 pence yesterday. It fell to 4.5102 yuan from 4.5296 yuan and was little changed at 76.37 yen.

The two-year swap rate fell 3 basis points to 2.20 percent and 10-year swaps rose 2 points to 2.94 percent.

BusinessDesk.co.nz

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