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NZ dollar holds near seven-month low ahead of Reserve Bank decision

Thursday 11th September 2014

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The New Zealand dollar held near a seven-month low ahead of the Reserve Bank decision on interest rates today where governor Graeme Wheeler is expected to signal rates will remain on hold for longer than previously forecast.

The kiwi was unchanged at 82.36 US cents at 8am in Wellington, from the same level at 5pm yesterday. The trade-weighted index was at 78.88 from 78.84 yesterday.

Wheeler is expected to keep the official cash rate on hold at 3.5 percent ahead of next week's general election, and as he assesses the impact of four hikes so far this year. Traders will be focused on whether he will pull back his track for future interest rate increases in light of weaker inflation and declining prices or the country's key export commodities such as dairy products and logs weigh on growth.

"After four consecutive hikes the RBNZ is widely tipped to keep the OCR on hold at today’s September Monetary Policy Statement while conveying a less hawkish policy stance," ANZ Bank New Zealand strategist Carrick Lucas and senior foreign exchange strategist Sam Tuck said in a note. "While the RBNZ will want to keep their options open as to the timing of future OCR hikes and the published projections will carry a lot of conditionality around them, we expect the 90-day bank bill track to be tweaked down closer to current market pricing, with a slightly lower endpoint (sub 5 percent) consistent with a March start to OCR hikes and more moderate path of policy tightening."

Following the release of the interest rate decision at 9am today, Wheeler will front a press conference and appear before parliament's finance and expenditure committee.

Wheeler may reiterate his previous comments that the strength of the New Zealand currency is "unjustified", as it is still a headwind for exporters despite recent declines, ANZ said. The kiwi has dropped almost 7 percent from its 88.35 US cent peak in July.

The New Zealand dollar will probably trade between 81.60 US cents and 82.60 cents today, ANZ said.

In Australia, the focus will be on the release of Australian employment data for August.

The local currency is little changed at 89.89 Australian cents from 89.85 cents yesterday and 63.78 euro cents from 63.72 cents. The kiwi dropped to 50.79 British pence from 51.11 pence yesterday as sterling strengthened after a new poll suggested Scotland wouldn't split from the UK. The New Zealand dollar advanced to 87.95 yen from 87.68 yen yesterday.


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