close
MENU
1 mins to read

Dollar gains after Reserve Bank trims OCR, drops intervention criteria

Kiwi rose to 66.28USc at 5pm in Wellington from 65.78USc immediately before the release

Paul McBeth
Thu, 23 Jul 2015

The New Zealand dollar rose after the Reserve Bank cut the official cash rate by a quarter point and called for a weaker currency, while dropping a reference to criteria justifying intervention.

The kiwi rose to 66.28USc at 5pm in Wellington from 65.78USc immediately before the release, and 66.16USc yesterday. The trade-weighted index advanced to 70.49 from 70.20 yesterday.

Reserve Bank governor Graeme Wheeler cut the official cash rate 25 basis points to 3% on the prospect of slowing growth and low inflation, and said more reductions was likely. Mr Wheeler said further depreciation was needed to support the country's exporters, while removing his reference to the New Zealand dollar being unjustifiably and unsustainably high – key criteria for the bank to intervene in foreign exchange markets.

"He's really just adopted the Reserve Bank of Australia-style speak, saying there will be further adjustments as necessary," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "He did a reasonably good job given the currency hasn't gone too far."

ASB's Mr Kelleher said market positioning was at extreme levels, with a record number of short positions – where investors bet an asset will fall - worth some $2 billion.

"Positioning is the probability in the currency market – it's been extreme for a while and got worse over the last couple of days," he said.

Wheeler kicked off an easing cycle last month as inflation stayed below his target band and falling dairy prices led to a deterioration in the country's terms of trade, both of which have worsened since then. The next GlobalDairyTrade auction on August 4 and the Fonterra Cooperative Group's next board meeting where it will review its forecast payout on August 8 are firmly on the radar for traders.

New Zealand's two-year swap rate increased to 2.89% at 5pm in Wellington from 2.86% yesterday, and the 10-year swap rate fell to 3.68% from 3.72%.

The local currency gained to 89.89Ac from 89.14Ac yesterday, and advanced to 4.1161 Chinese yuan from 4.1079 yuan. It was little changed at 60.57 euro cents from 60.45 cents yesterday, and traded at 42.43 British pence from 42.48p. The kiwi climbed to ¥82.21 from ¥81.82 yesterday.

(BusinessDesk)

Paul McBeth
Thu, 23 Jul 2015
© All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.
Dollar gains after Reserve Bank trims OCR, drops intervention criteria
49822
false