Dollar heads for 0.8% fall in short week as RBNZ rate review looms

The New Zealand dollar is heading for a 0.8 percent fall in a shortened week ahead of the Reserve Bank's rate review next Thursday.

The kiwi dropped to 86.16 US cents at 5pm in Wellington from 86.86 cents on Friday in New York, and from 86.27 cents at 8am and 85.87 cents yesterday. The trade-weighted index traded at 79.97 from 79.75 yesterday, and is heading for a 0.4 percent weekly decline from 80.26.

A BusinessDesk survey of 10 traders and strategists on Monday predicted the kiwi would trade between 85.30 US cents and 87.80 cents in the short week. Four predicted the kiwi would fall this week, while one expected it to gain and five saw it largely unchanged.

The local currency has been under pressure this week amid falling global dairy prices and general risk aversion among investors. Slower-than-expected inflation in the first three months of the year raised questions over the track of future rate hikes, though traders are still pricing in a 97 percent chance of a quarter-point increase to the official cash rate when the Reserve Bank reviews it next Thursday.

"It's the surprise from stuff not priced in, by either not hiking or hiking but making people think they're not going to hike by as much in the future," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland, referring to the OCR review. He gives a 75 percent chance of the kiwi staying largely unchanged and a 25 percent chance of a decline after the review.

Speizer said the kiwi may fall over the next week or two to between 84 US cents and 85 cents, but maintains his view that it will test a new high by the middle of the year on New Zealand's growth prospects and higher interest rate path.

New Zealand consumer confidence rose this month with households more upbeat about their financial position, according to an ANZ-Roy Morgan survey.

The New Zealand dollar advanced to 92.07 Australian cents from 91.62 cents yesterday, and gained to 88.97 yen from 87.73 yen. It was little changed at 62.22 euro cents from 62.14 cents, and slipped to 51.20 British pence from 51.34 pence yesterday.

(BusinessDesk)