The New Zealand dollar is set to end the month virtually unchanged against the greenback as US politicians try to navigate away from the fiscal cliff and trans-Tasman central banks prepare to review monetary policy next week.
The kiwi traded at 82.23 US cents at 5pm in Wellington from 82.24 cents at 8am, and down from 82.41 cents yesterday. The trade-weighted index fell to 73.58 from 73.74 yesterday, and is poised for 0.5%monthly gain.
Institutional investors will likely keep their asset allocations unchanged after a flat month in global equity markets, meaning the kiwi is not likely to get pushed around in the month-end tinkering by large finance houses.
That comes as US legislators from opposing political parties struggle to meet any common ground in trying to avert he automatic $US607 billion in tax increases and spending cuts which kick in on January 1.
"Equity markets are pretty flat for the month, so there's not much portfolio adjustment going on," says Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "The kiwi wants to drift lower."
The kiwi crept up to 78.86 Australian cents at 5pm in Wellington from 78.75 cents as central banks on both sides of the Tasman prepare to review their respective monetary policies.
Traders are pricing a 77% chance the 3.25% target cash rate will be trimmed, according to the Overnight Index Swap curve.
New Zealand's Reserve Bank, which also meets next week, is being given a 14% chance of a cut to its 2.5% official cash rate, meaning Australia's yield advantage will probably narrow.
Mr Kelleher says "markets are taking a slightly dovish tone going into the MPS" in New Zealand, after governor Graeme Wheeler previously indicated he would talk about the currency at the meeting.
New Zealand's currency increased to 67.81 yen from 67.65 yen yesterday and declined to 51.25 British pence from 51.45 pence. It fell to 63.27 euro cents from 63.63 cents yesterday.