Dollar edges up as traders place bets before Reserve Bank interest rate decision

The New Zealand dollar edged up ahead of the Reserve Bank's monetary policy statement tomorrow, with opinion divided over whether the benchmark interest will be cut or remain on hold.

The kiwi advanced to 71.31USc at 8am in Wellington, from 71.08USc at 5pm yesterday. The trade-weighted index gained to 74.70 from 74.42 yesterday.

Traders are finetuning their positions ahead of the Reserve Bank's decision tomorrow. Six of 16 economists expect governor Graeme Wheeler to reduce the official cash rate by 25 basis points to 3.25% amid low inflation, weak dairy prices, declining business and consumer confidence and following additional measures to curb Auckland's bubbling housing market. Still others say the conditions have not yet been met to cut rates. Most are betting Mr Wheeler will emphasise his easing bias, which has helped weaken the kiwi by 7.5% over the past 30 days, making it the worst performing major currency.

"Recent economic data releases argue in favour of looser policy from the Reserve Bank," Jane Foley, senior currency strategist at Rabobank International in London, said in a note. "Although expectations of a rate cut from the Reserve Bank have slipped over the past week or so, confirmation of steady rates tomorrow night are likely to support the New Zealand dollar. That said, we would expect Mr Wheeler to make his easing bias clear and for any upside in $NZ/$US to be short-lived."

Traders are currently placing a 40% chance on the Reserve Bank reducing rates tomorrow, down from a 54% chance on May 29, according to the overnight index swap curve.

Rabobank's Foley expects the kiwi to edge lower to 69USc over the next six to nine months, as the Reserve Bank cuts rates during the second half of this year and as the greenback advances as the Federal Reserve moves to hike rates in December.

In New Zealand today, electronic card transaction data for May is scheduled for release at 10:45am, giving an indication of how second-quarter growth is tracking.

The local currency advanced to 92.78Ac from 92.40Ac yesterday before a report on Australian consumer confidence and a speech by Reserve Bank of Australia governor Glenn Stevens to the Economic Society of Australia in Brisbane.

The kiwi rose to 63.23 euro cents from 62.83 cents yesterday, advanced to ¥88.66 from ¥88.52 was little changed at 46.35 British pence from 46.31p.

(BusinessDesk)