Dollar gains after new Reserve Bank lending limits won't bite as deeply as feared

The New Zealand dollar gained after steps by the Reserve Bank to curb lending on property investment in the country's biggest city of Auckland didn't go as far as some traders had feared.

The kiwi rose to 73.92 US cents at 5pm in Wellington from 73.63 cents at 8am and 73.60 cents yesterday. The trade-weighted index edged up to 76.26 from76.17 yesterday.

Reserve Bank governor Graeme Wheeler today announced plans to limit new lending on property investors in Auckland that would require them to have at least a 30 percent deposit. The bank is trying to cool down the city's property market, which has been steaming away ahead of the rest of the nation, with property investors seen as driving recent gains in Auckland's house prices.

"The measures announced today were not as harsh as they potentially could have been," said Raiko Shareef, currency strategist at Bank of New Zealand in Wellington. "It's not strong enough to instigate further weakness in the kiwi, and quite appropriately the governor refrained from talking about monetary policy implications of the measures."

Traders are pricing in a 44 percent chance Wheeler will cut the 3.5 percent official cash rate at next month's monetary policy statement as tepid inflation and record low interest rates across the Tasman place New Zealand as an outlier for its high real interest rates.

New Zealand's two year-swap rate increased to 3.40 at 5pm in Wellington from 3.365 yesterday, while the 10-year swap rate rose to 3.99 from 3.93.

Shareef said the kiwi will continue to trade in line with the US dollar as investors wait for the June 11 statement.

Government data today showed food prices fell in April with the annual pace of increases slowing to 1 percent. Food prices account for about a fifth of the broader consumers price index, which the Reserve Bank monitors to gauge inflation.

The kiwi rose to 4.5850 Chinese yuan at 5pm in Wellington from 4.5695 yuan yesterday ahead of official data on industrial production, retail sales and fixed asset investment.

The local currency fell to 92.63 Australian cents from 92.81 cents yesterday, and was little changed at 88.57 yen from 88.46 yen. It declined to 65.69 euro cents from 65.88 cents yesterday, and decreased to 47.12 British pence from 47.24 pence.

(BusinessDesk)