NZ dollar falls to week-low after Wheeler imposes loan restrictions; RBA open to more rate cuts
The New Zealand dollar fell to a week-low after Reserve Bank governor Graeme Wheeler imposed restrictions on home lending from October in an effort to cool a bubbling property market without hiking interest rates.
The kiwi fell as low as 79.73 US cents and traded at 79.87 cents at 5pm in Wellington from 80.64 cents at 8am and 81.18 cents yesterday. The trade-weighted index dropped to 75.21 from 76.22 yesterday.
Wheeler today announced restrictions on low-equity home loans in an effort to cool housing markets in Auckland and Christchurch, the country's two biggest cities. He has been reluctant to hike interest rates in response to the rising house prices, as doing so would lift the appeal of an already overvalued kiwi dollar.
By using the macro-prudential tools, the Reserve Bank has "greater flexibility in considering the timing and magnitude of any future increases in the OCR" which is sitting at a record-low 2.5 percent, he said.
"They were a bit more restrictive than people thought they were going to be, and they're going to slow things down a bit to take pressure off interest rates," said Michael Johnston, a senior trader at HiFX in Auckland. "He won't raise the OCR any time soon as they're scared of pushing the kiwi up sharply."
HiFX's Johnston said the kiwi might fall into the mid-78 US cents range by the end of the week.
Minutes to this month's Reserve Bank of Australia meeting showed the bank regulator's board is open to cut its 2.5 percent key rate further if it's needed to stoke a slowing economy across the Tasman.
The Australian dollar fell to 90.63 US cents from 92.11 cents yesterday. The kiwi was little changed at 88.08 Australian cents from 88.11 cents yesterday.
New Zealand business managers and professionals increased their inflation expectations in the latest Reserve Bank survey, released after Wheeler's speech. One-year ahead inflation expectations rose 38 basis points to 1.9 percent in the September survey of 82 business managers and professionals, and two-year ahead expectations increased 30 basis points to 2.36 percent.
Investors are awaiting the release of minutes to the Federal Open Market Committee's latest monetary policy meeting on Wednesday in Washington for any further clues to when the US central bank will start unwinding its stimulus programme.
The local currency fell to 77.91 yen at 5pm in Wellington from 79.20 yen yesterday and dropped to 59.83 euro cents from 60.92 cents. It declined to 51.04 British pence from 51.95 pence yesterday.