Dollar edges higher as traders await key RBNZ interest rate decision

The New Zealand dollar edged higher as traders await the outcome of the Reserve Bank monetary policy statement today, with opinion divided on the likelihood of an interest rate cut.

The kiwi advanced to 71.98 US cents at 8am in Wellington, from 71.53 cents at 5pm yesterday. The trade-weighted index gained to 74.96 from 74.72 yesterday.

Traders are pricing in a 46 percent chance Reserve Bank governor Graeme Wheeler will cut the 3.5 percent official cash rate by 25 basis points, according to the overnight index swap curve. Those expecting a cut point to low inflation, weak dairy prices, and measures being taken to curb Auckland's bubbling housing market, while others say conditions for lower rates have not yet been met. Still, most are betting Wheeler will emphasise his easing bias, which has helped weaken the kiwi 6.3 percent since he dropped a reference to rate hikes at the April 30 review.

"In what is likely to be the most eagerly awaited RBNZ event in years, this morning sees the unveiling of the June MPS," ANZ Bank New Zealand senior economist Mark Smith and senior FX strategist Sam Tuck said in a note. "Market pricing and the analyst community are split on whether the RBNZ will actually cut the OCR today and the extent to which further easing will be signalled; considerable reaction from the rates and currency markets from 9am is taken as given."

ANZ, which expects the RBNZ to cut rates, says the kiwi is likely to trade between 70.20 US cents and 74.40 cents today.

Governor Wheeler will front a press conference after the decision is released at 9am and will appear before parliament's finance and expenditure committee at 1pm.

Accommodation data for April is also scheduled for release today, and the Real Estate Institute may publish its monthly house sales data.

The New Zealand dollar slipped to 92.71 Australian cents from 92.94 cents yesterday, gained to 63.54 euro cents from 63.32 cents, advanced to 88.24 yen from 87.97 yen and was little changed at 46.32 British pence from 46.38 pence.

(BusinessDesk)