Kiwi tests support on interest rate outlook

Friday 4th March 2011

The New Zealand dollar was again testing support levels today as investors continued to focus on the possibility of a cut in the official cash rate next week and also waited for data in the US.

The NZ dollar was at US73.79c at 5pm, down from US74.03c at 8am and US74.41c at 5pm yesterday. After topping out at US74.70c on Thursday night it fell it quickly to US73.90c.

Imre Speizer, senior currency strategist at Westpac, said the local currency was testing support at US73.85c this afternoon.

"It looks like it will get through there and test support at US73.50c," he said.

Locally, the big issue is whether the Reserve Bank of New Zealand will cut the official cash rate next Thursday to boost the New Zealand economy after it took a hit from the earthquakes in Christchurch.

There has been speculation of a 50 basis point cut to 2.5%.

Speizer said the market was currently pricing in a cut of 32 to 33 basis points.

"There could be a bit of a reaction if they do 50 points," he said.

The NZ dollar fell to its lowest level in more than 18 years against the Australian dollar around A72.90c on Thursday night, and was still at its lowest since late 1992 when it traded at A72.79c at 5pm, down from A73.25c at 5pm yesterday.

The NZ dollar has been weak against the Australian dollar because interest rates are falling here while they are expected to rise in Australia.

Globally, investors are waiting for non-farm payrolls data in the US tonight.

The euro has risen sharply after the European Central bank surprised investors by signalling it would likely hike rates in April. European Central Bank President Jean-Claude Trichet cemented expectations of a near-term interest rate rise.

In a press conference after the ECB left its benchmark rate at 1.0%, Trichet said the bank will exercise "strong vigilance" over rising inflation, a phrase that in the past signalled a rate rise was only a month away.

The NZ dollar fell to 0.5284 euro at 5pm from 0.5310 euro at 8am and 0.5370 euro at 5pm yesterday. It is around nine month lows.

The NZ dollar was at 60.76 yen at 5pm from 60.89 at the same time yesterday, while the trade weighted index dropped to 65.07 from 65.67 yesterday.

NZPA

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