NZ dollar gains after RBNZ signals end of cutting cycle

Thursday 10th December 2015

The New Zealand dollar gained after the Reserve Bank signalled an end to its current round of rate cuts, having previously left the door open if the currency remained too high.

The kiwi rose to 67.38 cents at 5pm in Wellington from 66.36 cents immediately before the release and 66.28 cents yesterday. The trade-weighted index advanced to 73.02 from 72.10 yesterday.

RBNZ governor Graeme Wheeler cut the official cash rate a quarter-point to 2.5 percent, a level he said was low enough to spur inflation back into the target band of 1 percent to 3 percent. The bank's forecast track for the 90-day bank bill rate, seen as a proxy for the OCR, indicated rates would stay on hold for the next three years, and Wheeler said he would only reduce rates further if circumstances warranted it. When quizzed by politicians on the spike in the kiwi, Wheeler said he wait and "see what happens in the next few days."

"He could've lowered the 90-day track by 10 points and the market would think he's going to cut, but he's kept it flat, so quite clearly there are no further rate cuts," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland.

Next week's US Federal Reserve meeting will probably see the start of higher American interest rates, but Kelleher said that might not push the kiwi dollar down against the greenback, given the high level of expectation already priced in.

"All the risks point to the kiwi dollar outperforming," he said.

Fonterra Cooperative Group today maintained its forecast payout to farmers, while government data showed retail spending on credit and debit cards rose last month and a Real Estate Institute survey showed Auckland house sales fell to a four-year low in November.

New Zealand's two-year swap rate rose three basis points to 2.73 percent and the 10-year swap declined two basis points to 3.56 percent on the flat outlook for the OCR.

The kiwi climbed to 92.35 Australian cents from 91.76 cents yesterday after Bureau of Statistics figures showed a surge in employment across the Tasman last month.

The local currency gained to 4.3368 Chinese yuan from 4.2570 yuan yesterday, and advanced to 81.93 yen from 81.38 yen. It rose to 61.21 euro cents from 60.77 cents yesterday, and increased to 44.37 British pence from 43.72 pence.

BusinessDesk.co.nz

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