NZ dollar treads water ahead of RBNZ review expected to stand pat

Thursday 9th August 2018

The New Zealand dollar was largely unchanged ahead of today's Reserve Bank policy review where governor Adrian Orr is expected to keep the benchmark rate on hold and affirm a flat future track.

The kiwi traded at 67.50 US cents as at 8am in Wellington from 67.53 cents yesterday. The trade-weighted index was at 72.66 from 72.68.

Orr is expected to keep the official cash rate at 1.75 percent, with the RBNZ's forecasts likely to project little change in what's a very gradual rise in the forward track. The governor has kept the door open to a potential cut in his previous review and a slump in business confidence and sharply reduced expectations in economic growth may warrant ongoing caution about the outlook.

"The RBNZ’s neutral messaging is about caution in light of uncertainty, sending the clear message that the RBNZ is willing to do whatever is necessary should developments change," ANZ Bank New Zealand economists Liz Kendall and Philip Borkin said in a note. "We expect the RBNZ to deliver a similar neutral message, which has the risk of disappointing those positioned more for a dovish shift."

A brewing trade war between China and the US is a major risk being watched by the Reserve Bank and has weighed heavily on risk-sensitive currencies such as the kiwi in recent months. US President Donald Trump ramped up the pressure with plans for an even bigger tariff for Chinese goods last week, and Chinese authorities have responded in kind. Still, Chinese trade data yesterday showed unexpected strength in imports. The kiwi rose to 4.6139 Chinese yuan from 4.6055 yuan yesterday.

The local currency edged down to 90.77 Australian cents from 90.91 cents yesterday after Reserve Bank of Australia governor Philip Lowe gave an upbeat assessment of the Australian economic outlook in a speech yesterday and virtually ruled out a rate cut.

The kiwi rose to 52.38 British pence from 52.14 pence yesterday after reports UK Prime Minister Theresa May is planning to hold a top-level Cabinet meeting next month to discuss a response if her government can't reach a deal with the European Union over its exit from the regional bloc. The local currency traded at 58.11 euro cents from 58.10 cents yesterday and slipped to 74.90 yen from 75.13 yen.

(BusinessDesk)

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