Dollar holds above 70.50 US cents as global concerns swamp OCR review

Thursday 28th January 2010

The New Zealand dollar held above 70.50 U.S. cents after central bank Governor Alan Bollard held the official cash rate at a record-low 2.5%, as ongoing concerns about the state of the global economy stay at the forefront of investors’ minds.

Bollard kept the OCR unchanged and began paving the groundwork for this year’s rate hikes, saying he would expect to remove policy stimulus around the middle of the year when he previously said “conditions may support” their removal around mid-year.

The Federal Open Market Committee also kept interest rates on hold today – near zero –though a dissenting voice on the committee, calling for higher borrowing costs, helped underpin the greenback.

Meanwhile, investors are still focusing on the prospect of tougher regulations for banks’ risk taking, Chinese officials clamping down on lending, and sovereign credit ratings.

“The kiwi remains under pressure with the negative prevailing sentiment,” said Imre Speizer, markets strategist at Westpac Banking Corp. “It was swamped by the negative smell in the air,” which left today’s central bank announcements on the sidelines, he said.

The kiwi edged up to 70.53 U.S. cents from 70.43 cents immediately before Bollard’s announcement, and traded at 70.46 cents yesterday. It gained to 64.64 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 64.50 yesterday, and rose to 63.44 yen from 62.98 yen. It increased to 50.30 euro cents from 50.22 cents yesterday, and slipped to 43.64 pence from 43.73 pence.

Speizer said the currency may trade between 70.30 U.S. cents and 71 cents today after stocks on Wall Street ended the day higher, with aircraft maker Boeing and digger manufacturer Caterpillar reporting better-than-expected earnings in the fourth quarter.

The kiwi will probably lose ground against its Australian counterpart over the coming weeks when the Reserve Bank of Australia hikes rates for a fourth straight time next week, boosting the yield differential between the trans-Tasman neighbours, Speizer said.

RBA Governor Glenn Stevens was the first G-20 nation to begin tightening monetary policy last year when the so-called lucky nation avoided falling into recession amid booming demand for raw materials out of China.

The kiwi rose to 78.87 Australian cents from 78.69 cents immediately before the OCR announcement, and traded at 78.61 cents yesterday. Speizer said the kiwi will probably reverse any losses against the Australian dollar when Bollard embarks to tightening monetary conditions.

Businesswire.co.nz

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