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NZ dollar holds near two-week low as central bank meetings loom

Monday 5th March 2012

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The New Zealand dollar held near a two-week low in the lead-up to a slew of central bank meetings this week, including the Reserve Bank of New Zealand, where traders will be looking for any shift in direction.

The kiwi dollar was virtually unchanged at 82.91 US cents at 8am from 82.92 cents at the close of New York trading on Friday. The trade-weighted index fell to 73.51 from 73.76.

Reserve Bank Governor Alan Bollard is expected to hold the official cash rate at 2.5 percents when he reviews monetary policy on Thursday, though analysts are starting to see emerging signs of higher interest rates on the horizon. Traders are starting to bet on a rate hike in the next year, pricing in 24 basis points of increases in the coming 12 months, according to the Overnight Index Swap Curve.

“The kiwi has been trading in a tight channel since the end of January,” said Stuart Ive, currency trader at HiFX. Investors will be looking for the “tone of the statement that comes afterwards,” to gauge the possibility of rate rises in the near future, he said.

The Reserve Bank of Australia kicks off this week’s interest rate reviews tomorrow, and most strategists expect Governor Glenn Stevens will hold the target cash rate at 4.25 percent. Other central banks meeting this week include the Bank of Canada, Bank of England and European Central Bank.

Investor’s appetite for higher-yielding assets was dimmed after Spain, one of the European nations singled out over its level of debt, has revised up its 2012 deficit targets, and agreed on a wider budget deficit target of 5.8 percent of gross domestic product from a previous goal of 4.4 percent. That puts the nation at odds with European Union fiscal pact signed up to by 25 countries on Friday, which requires balanced budgets in the medium term.

Ive said “Spain is in direct confrontation with the EU and its budget – and this move has weighted on the euro heavily.”

The kiwi climbed to 62.92 euro cents 62.75 cents last week.

“Monday through to Wednesday the kiwi will continue to trade on the headlines of the Middle East or the developments in Europe,” he said.

Rating agency Moody’s Investors Service cut Greece’s credit rating to C, the agency’s lowest level, after the Mediterranean nation began the biggest sovereign debt restructuring programme ever.

In New Zealand, international travel and migration for January and the value of building work for the December quarter is due for release this morning.

The New Zealand dollar was little-changed at 77.26 Australian cents from 77.26 at the close of trading in New York. It rose to 52.40 British pence from 52.37 pence last week, and edged up to 67.86 yen from 67.82 yen.

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