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NZ dollar retraces some of yesterday’s gains as markets digest Wheeler interest rate comments

Friday 4th October 2013

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The New Zealand dollar gave up some of yesterday's gains as investors digested comments from Reserve Bank Governor Graeme Wheeler that he would raise interest rates more aggressively should lending limits fail to cool the bubbling house market.

The kiwi declined to 82.91 US cents at 8am in Wellington from 83.06 cents yesterday. The trade-weighted index fell to 76.81 from 77.04 yesterday.

The local currency retraced some of its gain after jumping about half a cent yesterday following comments by Wheeler that the central bank expects to increase the 2.5 percent official cash rate by 2 percent from 2014 to the beginning of 2016 but would make larger increases should the loan-to-value limits fail to slow house price inflation.

"The impact of the RBNZ LVR comments yesterday appear to be waning," said Alex Sinton, senior dealer at ANZ New Zealand. "The reality is they are talking about a two-year window for raising rates at 2 percent and possibly quicker moves off the back of house prices."

"Everybody will still be monitoring data that comes out of that market and trying to make a call on things but they didn't really say anything new in our mind, nothing that we hadn't already seen, heard and digested," Sinton said. "I suspect it might be a bit of a neutral day today with 82.70 support and 83.20 resistance."

The US dollar fell against most major currencies overnight on concerns about the effect of a partial US government shutdown after Congress this week failed to agree on the budget for the first time in 17 years. A key government employment report, closely watched by the Federal Reserve, now won't be published on Friday because of the shutdown.

Later today, traders will be eyeing the Chinese HSBC services PMI for indications of how Asia's largest economy is tracking.

The New Zealand dollar slipped to 88.13 Australian cents from 88.43 cents yesterday. The local currency weakened to 80.60 yen from 81.10 yen yesterday ahead of a Bank of Japan meeting today where no policy changes are expected. The kiwi dropped to 60.85 euro cents from 61.04 cents yesterday and declined to 51.29 British pence from 51.15 pence.

BusinessDesk.co.nz

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