Dollar gains as traders eye transtasman interest rate tracks

The New Zealand dollar gained as investors weighed up the prospects for rate cuts on both sides of the Tasman before the Reserve Bank 's review on Thursday and after minutes to Australia's last review were interpreted as having a more pronounced easing bias.

The kiwi gained to 65.90USc at 5pm in Wellington from 65.67USc at 8am and 65.61USc yesterday. It advanced to 89.60Ac from 89.12Ac yesterday.

Traders have priced in an outside chance Reserve Bank governor Graeme Wheeler will cut the official cash rate by 50 basis points on Thursday in response to a sagging dairy sector and low inflationary expectations. Meantime, minutes to the RBA's July 7 meeting show the board expected more assistance to its inflation target from a weaker Australian dollar and traders have priced in a 24% chance Australia's central bank will reduce its target cash rate at next month's meeting.

"We saw a mild increase in the easing bias by the RBA and that encouraged traders to keep pressure on the Aussie dollar," said Sam Tuck, senior foreign exchange strategist at ANZ Bank New Zealand in Auckland. "The market sees the window of opportunity for the Reserve Bank to have an immediate impact on the New Zealand dollar as closing. You'd really need to see a 50 (basis point cut) to send the New Zealand dollar lower."

ANZ expects New Zealand's Reserve Bank will cut the OCR by 25 basis points to 3% on Thursday. Mr Tuck said he anticipates the kiwi dollar will consolidate for the time being due to a large number of traders holding short positions in the currency, where they bet it will decline.

New Zealand government data today showed net migration reached a new record in June, and is nearing the Treasury's topside forecast, which would fuel consumer spending and add pressure to the housing market, while short-term arrivals continued to rise.

Reserve Bank figures today showed domestic spending on New Zealand credit cards slipped 0.1% in June, though total billings were up 6.5% on the year.

Traders are awaiting Australian second-quarter inflation figures tomorrow and a speech by Reserve Bank of Australia governor Glenn Stevens.

The local currency rose to 4.0921 Chinese yuan at 5pm in Wellington from 4.0760 yesterday, and climbed to ¥82 from ¥81.50. It increased to 60.93 euro cents from 60.60 cents yesterday, and advanced to 42.43 British pence from 42.06p. The trade-weighted index rose to 70.22 from 69.37 yesterday.

New Zealand's two-year swap rate increased to 2.87% from 2.85% yesterday, and the 10-year swap rate edged up to 3.73% from 3.72%.

(BusinessDesk)