NZ dollar falls as Bollard blames global uncertainty for interest rate pause

Thursday 15th September 2011

The New Zealand dollar fell after Reserve Bank Governor Alan Bollard held the official cash rate at 2.5%, as expected, blaming ongoing global turmoil for staying his hand.

The kiwi dropped to 81.28 U.S. cents at 5pm from 82.03 cents at 8am, and was down from 82 cents yesterday.

Bollard kept the benchmark interest rate a record-low level, saying said he will keep the OCR on hold if the global financial situation deteriorates and has a severe impact on New Zealand’s economy.

If things settle down and local lenders are able to borrow funds in international money markets and Europe’s debt woes don’t seep into Asia, Bollard said he expects to start hiking over the coming year.

“There were probably a lot of people that thought he wouldn’t have such a big shift,” which helped push the kiwi down, said Chris Tennent-Brown, an FX economist at Commonwealth Bank of Australia in Sydney.

Bollard reined in his forecast for the 90-day bank bill, often seen as a proxy for the track of the OCR, as Europe’s sovereign debt crisis and a slow-down in the United States threaten to derail the global economic recovery.

Markets will go back to watching the debt woes in Europe and whether that region can prevent greater contagion, while on the other side of the Atlantic, there’s U.S. inflation, manufacturing, and current account data.

“It’s just a very edgy time – trading sessions are either risk on or risk off and there doesn’t seem to be any specific focus on any specific asset classes or regions,” Tennent-Brown said.

The kiwi fell to 71.31 on the TWI from 71.79 yesterday, and slipped to 79.66 Australian cents from 79.83 yesterday. It declined to 62.29 Japanese yen from 62.86 yen yesterday, and fell to 59.23 euro cents from 59.60 cents. It fell to 51.51 pence from 51.99 pence previously.

(BusinessDesk)

BusinessDesk.co.nz

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