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Kiwi slips to three-week low – rates cut not discounted

The New Zealand dollar traded near a three-week low amid speculation a weak jobs market gives the Reserve Bank more room to cut interest rates to stoke the economy, eroding the yields available in the local currency.

The kiwi fell to 81.39 US cents from 81.45 cents in late New York trading on Friday. The trade-weighted index was at 72.96 from 72.94.

Markets are pricing in a 22% chance of a cut to the official cash rate at the central bank's next meeting on December 6, based on the Overnight Interest Swap curve.

A rising jobless rate of 7.3% last week drove down the kiwi, though on a trade-weighted basis it is still above the 72 level the bank had forecast for the fourth quarter of this year.

"With the risk of an RBNZ interest rate cut now very real, the NZD/USD topside looks unlikely to be tested," says Mike Jones, currency strategist at Bank of New Zealand. Still, with signs of an improving global economy "we doubt we're on the cusp of a substantial downward correction".

Locally, key data out this week is quarterly retail sales on Wednesday, with growth in sales forecast to have slowed to 0.5%, according to a Reuters survey, from 1.3% three months earlier.

The kiwi fell to 78.23 Australian cents from 78.38 cents and traded at 64 euro cents from 64.06 cents. It slipped to 51.19 British pence from 51.23 pence and was at 64.68 yen from 64.71 yen.
(BusinessDesk)

Comments and questions
2

If the Reserve Bank had acted more responsibly and dampened the housing market before it got into this buying frenzy, then they would have room to move interest rates down. After the ChCh earthquake, they must have known house prices would need to be brought into line.
The banks must be regulated.
If they drop interest rates now, house prices would be on steroids and this would have to eventually feed into the inflation figures.

House price increases should be included in the official inflation figures, after all, housing costs are most famillies biggest budget item.

No chance.