NZ dollar pares gains as White House denies reported Obama comments, RBNZ awaited

Tuesday 9th June 2015

The New Zealand dollar pared its gains after the White House denied reports that US President Barack Obama had expressed concern about the strength of the greenback, and as investors mull the potential for the Reserve Bank to cut interest rates this week.

The kiwi fell to 71.09 US cents at 5pm in Wellington from 71.41 cents at 8am, and was up from 70.50 cents yesterday. The trade weighted index gained to 74.42 from 74.21 yesterday.

The greenback dropped after reports Obama raised concerns about the appreciation in the greenback at the Group of Seven nations' summit in Germany, a rumour that the US administration later denied. The kiwi dollar has been on the decline as the prospect of the US Federal Reserve raising interest rates becomes more realistic with a strengthening economy.

Tempering that is uncertainty over this week's Reserve Bank monetary policy review, where traders have priced in a 47 percent chance governor Graeme Wheeler will cut the 3.5 percent official cash rate. Policy measures to cool Auckland's property market heightened speculation he may cut in response to inflation tracking below the central bank's target band of between 1 percent and 3 percent.

"We don't think the Reserve Bank will cut, therefore if we're right, the speculators will be disappointed and will have to buy back their short positions immediately," said Imre Speizer, markets strategist at Westpac Banking Corp in Auckland. "Depending on what kind of guidance you get will determine what kind of bounce (in the kiwi)."

New Zealand two year swap rates declined to 3.35 percent at 5pm in Wellington from 3.37 percent yesterday, and the 10 year swap rate slipped to 4.06 percent from 4.10 percent.

Speizer said the interest rate curve should continue to steepen throughout the year as long rates follow global yields higher, while short dated rates follow the Reserve Bank lower.

"People with mortgages, not floating but with six month or one year terms, should be quite happy with all of that," he said. "With the steepening of the curve I don't think you're going to get too much uptake fixing for five years."

New Zealand property values rose 9 percent in the 12 months ended May 31, the fastest annual pace in 15 months, according to Quotable Value figures, while government data showed weakness in meat and dairy product manufacturing weighed on industrial production in the March quarter.

The kiwi dollar rose to 4.4094 Chinese yuan at 5pm in Wellington from 4.3735 yuan yesterday after China's consumer price index fell to an annual 1.2 percent in May, below expectations. The kiwi fell to 92.41 Australian cents from 92.60 cents yesterday.

The local currency traded at 88.54 yen from 88.44 yen yesterday, and dropped to 62.84 euro cents from 63.48 cents. It was little changed at 46.31 British pence from 46.18 pence yesterday.

BusinessDesk.co.nz

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