NZ dollar rises from near three-week low as RBNZ assessment looms

Tuesday 19th July 2016

The New Zealand dollar bounced from near a three-week low as investors weigh up whether the Reserve Bank will try to jawbone a persistently strong currency lower and indicate an interest rate cut is likely next month.

The kiwi increased to 71.12 US cents from 70.93 cents yesterday. The trade-weighted index rose to 75.98 from 75.74 yesterday.

The local currency dropped to its lowest since June 30 yesterday after weaker-than-expected inflation heightened expectations the Reserve Bank will put more focus on the strong kiwi, which has traded above the bank's projections since last month's monetary policy statement. A strong currency was cited as an alternate scenario to the bank's central view, and would warrant a reduction in the 2.25 percent official cash rate. Traders have priced in an 80 percent chance the OCR will be lowered, up from about 40 percent before the RBNZ said it would give an economic update on July 21.

"NZD has been well bid on dips, and the onus is now on the RBNZ to deliver a clear message on Thursday," ANZ Bank New Zealand senior rates strategist David Croy said in a note. "Any hint of wavering will be seized on, with NZ’s relatively high interest rates a clear factor in NZD strength."

No local data is scheduled for release today, with Fonterra Cooperative Group's GlobalDairyTrade auction on Tuesday in the US the next major event ahead of the RBNZ update.

The local currency rose to 93.59 Australian cents from 93.35 cents yesterday. The Reserve Bank of Australia will release minutes to its last policy meeting today.

The kiwi gained to 75.47 yen from 74.80 yen yesterday and advanced to 4.7680 Chinese yuan from 4.7488 yuan. It was little changed at 53.66 British pence from 53.57 pence yesterday and traded at 64.24 euro cents from 64.08 cents.

BusinessDesk.co.nz

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