Dollar falls ahead of Reserve Bank OCR review

The New Zealand dollar fell ahead of the US Federal Reserve's decision on monetary policy and the Reserve Bank of New Zealand's review of the official cash rate, which may contain softer language about the direction of interest rates when it's released at 9am local time Thursday morning.

The kiwi fell to 76.90 US cents at 5pm in Wellington from 77.15 cents at 8am this morning. The trade-weighted index increased to 79.30 from 78.98 yesterday.

The Federal Reserve Open Market Committee releases its latest statement at 6am New Zealand time tomorrow, and is expected to keep its target rate at zero to 0.25 percent, although its statement may hint at the timing of interest rate hikes. The RBNZ's statement at 9am is expected to keep the OCR at 3.5 percent, although it may drop the wording of last month's monetary policy statement that rates could go up or down from here after assistant governor John McDermott said last week that a hike isn't being considered.

"Thursday's RBNZ OCR Review should represent a dovish shift compared to the March meeting, but market reaction should be muted, given last week's speech let the cat out of the bag," Westpac Banking Corp strategist Imre Speizer said in a note. McDermott's speech "indicated that the outlook for the OCR is still on hold, but added that if domestic inflation pressures fell any further the RBNZ would consider cutting the OCR. This is effectively a conditional easing bias, and is what the market is expecting on Thursday."

In the US later today, traders will be eyeing the first official report on first-quarter GDP growth. According to Bloomberg, the consensus forecast for first quarter activity has dropped considerably over the course of the quarter, from 2.8 percent at the end of last year to 1 percent at present.

The kiwi didn't move much after figures showed New Zealand recorded a bigger-than-expected trade surplus in March, as exports fell less than forecast. Statistics New Zealand said the trade surplus was $631 million in March, bigger than the $341 million expected in a Reuters poll of economists and compared with a February surplus of $83 million. Meanwhile, the ANZ Business Outlook showed confidence slipped in April, with a net 30 percent of firms optimistic about the general economy in April, down from 35.8 percent in March.

The New Zealand dollar traded at 96.27 Australian cents, having earlier touched a month-low 96.09 cents on signs iron ore prices are lifting off their lows, from 96.80 cents yesterday.

The local currency advanced to 50.17 British pence from 50.01 pence after weaker-than-expected UK first-quarter GDP data. The kiwi gained to 70.18 euro cents from 70.07 cents yesterday and increased to 91.47 yen from 90.73 yen.

(BusinessDesk)