Member log in

Dollar jumps as Reserve Bank stays firm on future OCR hikes

The New Zealand dollar surged against other currencies after the Reserve Bank governor Graeme Wheeler raised the official cash rate for a third time as expected and kept projected interest rate rises in line with his March projections.

The kiwi rose to 86.50 US cents at 5pm in Wellington from 85.53 cents at 8am and 85.48 at 5pm yesterday. The trade-weighted index advanced to 80.69 from 79.79.

Wheeler hiked the OCR a quarter-point to 3.25 percent, his third increase since he began his tightening cycle in March in a bid to fend off inflationary pressures. The governor gave no indication of a slower pace for further increases, thought the market has moderated its expectations for hikes in the OCR this year by about 15 basis points since March. Traders had speculated weaker commodity prices, particularly a 23 percent drop in global dairy prices since the start of the year, would make the governor dovish.

The market was "massively surprised" by Wheeler's firm stance, said Imre Speizer, senior market strategist at Westpac Banking Corp. "Some market participants would have focused on the negatives and not really thought too much about the positives, but if you thought about all of the positives and negatives together you would have come to the conclusion that they roughly cancel each other out and that there should not be too much change to track."

"Its not just about milk, yes milk prices have fallen, but if you'd looked at it a bit more closely you would have seen the Reserve Bank itself did forecast a fall in the milk price," he said.

Across the Tasman, Australian unemployment figures remained steady at 5.8 percent, a "slightly disappointing" result which showed a pick-up in the economy "but at a very sluggish pace", Speizer said. The kiwi jumped over a cent to 92.22 Australian cents, from 91.12 cents at 8 am and 91.08 cents yesterday.

"Reserve Bank of Australia hikes are quite a distant prospect still, whereas we are firmly on track to go up a long way," said Speizer.

Deputy RBNZ governor Grant Spencer addressed the issue of Australian interest rates during questioning today at Parliament's finance and expenditure select committee from Labour MP Trevor Mallard.

"They are on hold. They got up to 3.5 percent at their peak (during the mining boom that has now ended), and came down to 2.5 percent. Nobody's expecting much action in Australia this year," Spencer told the committee earlier today.

The kiwi touched a 13 month high of 63.87 euro cents at 5pm from 63.22 cents at 8am, ahead of a report on Eurozone industrial production. The local currency rose to 51.49 British pence from 50.94 pence this morning, recovering from an overnight drop after a report showed UK employment fell to its lowest in more than five years.

The New Zealand dollar drifted to 88.28 yen from 87.26 yen at 8am on speculation the Bank of Japan will refrain from expanding stimulus at its meeting tomorrow.

(BusinessDesk)

Comments and questions
1

Wheeler needs to go back to Keys and ask for some real-world tools that he can use. Fiddling with the OCR just exposes his impotence in the global world we now live in. Changes to the OCR will only penalize Kiwis. Foreigners can plunder our real estate markets with impudence.