Dollar heads for 0.2% weekly decline as markets eye central banks

The New Zealand dollar is heading for a 0.2 percent weekly decline against the greenback as markets digest the Reserve Bank's formal shift to an easing bias, and ahead of next week's monetary policy review in Australia.

The kiwi slipped to 75.87 US cents at 5pm in Wellington from 76.05 cents last Friday in New York, down from 76.31 cents at 8am and 76.17 cents yesterday. The trade-weighted index dropped to 78.34 from 78.41 yesterday, and is heading for a 0.7 percent weekly decline.

Investors are assessing the prospects of lower rates in Australia and New Zealand as tepid inflation provides scope for the nations' respective central banks to keep stimulating their economies with lower rates. New Zealand's Reserve Bank kept its key rate at 3.5 percent on Thursday, while opening up the possibility of a rate cut if inflationary pressures come in below expectations, while traders are pricing in a 62 percent chance of a cut by the Reserve Bank of Australia when it reviews its policy on Tuesday.

"If they were to cut, markets would probably look at Australia and increase the probability that the RBNZ follows through on its tonal shift, just because they're our largest trading partner," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "I doubt it would be massive," he said, referring to the impact on the kiwi if the RBA cuts.

Tuck said the greenback is being supported by some stronger than expected wage data in the US despite the downturn in economic activity, and investors will be closely watching next week's non-farm payrolls for a gauge on the strength of the world's biggest economy.

New Zealand employment data next Wednesday will also be watched after Reserve Bank governor Graeme Wheeler name-checked wages as one of the inflation components the bank is monitoring.

New Zealand Finance Minister Bill English today said the government's quest to reach an operating surplus had become more challenging, and that the low interest rate environment and tepid inflation was expected to strip out $4.5 billion from its tax-take over the next four years.

Meantime, Quotable Value figures showed New Zealand's property values accelerated at their fastest annual pace in 12 months in April, with the limited available housing stock in Auckland continuing to drive up prices.

The local currency rose to 96.11 Australian cents at 5pm in Wellington, from 95.22 cents yesterday, and fell to 4.7047 Chinese yuan from 4.7224 yuan yesterday. It rose to 90.74 yen from 90.35 yen yesterday, and declined to 67.67 euro cents from 68.57 cents. The kiwi was little changed at 49.42 British pence from 49.38 pence yesterday.

New Zealand's two-year swap rate declined to 3.47 at 5pm in Wellington from 3.48 yesterday, and the 10-year swap rate increased to 3.86 from 3.82 yesterday.

(BusinessDesk)