Member log in

Dollar little changed before RBNZ interest rate decision as traders mull outlook

The New Zealand dollar was little changed ahead of the Reserve Bank decision on interest rates today as traders await clues to the pace of the tightening cycle.

The kiwi was steady at 85.92 US cents at 8am in Wellington from 85.94 cents at 5pm yesterday. The trade-weighted index was almost unchanged at 79.96 from 79.99 yesterday.

New Zealand's central bank is expected to hike rates for the second month in a row, taking the benchmark to 3 percent. Last month the RBNZ became the first major central bank to raise interest rates since the global financial crisis, and signalled more hikes were in the pipeline as it attempts to head off inflation. Still, traders are mulling whether the bank may slow the pace of future hikes after a decline in dairy prices and lower than expected inflation.

"Normally an interest rate hike by a central bank is very positive for the currency especially when they are the only ones tightening, but in the case of the RBNZ they could say future rate hikes will be conditional on data, which would suggest a pause in June," Kathy Lien, managing director of foreign exchange strategy at BK Asset Management in New York, said in a note.

Lien said traders will be focused on any comments on the outlook for future hikes as they mull so-called long bets on the currency, which anticipates a currency will rise in value.

"If the RBNZ were to adopt a less hawkish posture, it would trigger further unwinding of long NZD/USD positions that could take the currency pair to 84 cents even if it remains one of the world's most hawkish central banks," Lien said. "If the RBNZ tightens and remains committed to their hawkish monetary policy plans, NZD will soar as traders who sold above 87 cents reload their long positions."

The central bank will release its decision in a one-page statement at 9am local time.

The New Zealand dollar slipped to 92.51 Australian cents from 92.59 cents yesterday, edged lower to 62.18 euro cents from 62.22 cents, advanced to 51.20 British pence from 51.07 pence and dropped to 88.03 yen from 88.15 yen.

(BusinessDesk)