Dollar heads for 1.1% weekly gain as RBNZ takes softer approach to rate cuts

The New Zealand dollar is heading for a 1.1 percent gain against the greenback this week as the Reserve Bank's approach to lower interest rates disappointed some investors wanting more aggression.

The kiwi increased to 65.82 US cents at 5pm in Wellington from 65.87 cents last Friday in New York. It was down from 66.10 cents at 8am and 66.29 cents yesterday as weak Chinese manufacturing figures and falling commodity prices weighed on the outlook for Australia and New Zealand's exports. The trade-weighted index fell to 70.21 from 70.50 yesterday, and is heading for a 1.2 percent weekly gain.

A BusinessDesk survey of 11 currency advisers on Monday predicted the kiwi would trade between 63.50 US cents and 67.05 cents. Six expected the kiwi to gain, four bet it would fall and one said it would stay largely unchanged.

The kiwi got a boost yesterday when Reserve Bank governor Graeme Wheeler lowered the official cash rate 25 basis points to 3 percent, and dropped his reference to criteria warranting intervention in foreign exchange markets, while reiterating his desire for a weaker New Zealand dollar. Wheeler will deliver a speech on the New Zealand economic outlook next week.

"The wash-up last night basically suggested that the New Zealand dollar was fairly priced into what the RBNZ did - a 25 basis point cut, and further easing bias, but not an overly aggressive one," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "The kiwi has done its dash for the moment and is relatively happy to consolidate."

ANZ's Tuck expects the kiwi will continue to decline as falling prices for hard and soft commodities weigh on currencies such as the Australian and New Zealand dollars.

Government data today showed New Zealand posted an unexpected trade deficit in the month of June, which is typically a surplus, though bigger export receipts than anticipated helped allay any fears about the figures.

The kiwi rose to 90.24 Australian cents from 89.85 cents yesterday, and fell to 4.0871 Chinese yuan from 4.1161 yuan. The preliminary China Caixin purchasing managers' index unexpectedly fell today, putting downward pressure on commodity prices on fears a slowing Chinese economy will reduce global demand for raw materials.

The New Zealand Debt Management Office sold $200 million of bonds maturing in April 2020, attracting bids worth $1.06 billion. The bonds pay annual interest of 3 percent, and sold at an average yield of 2.73 percent.

New Zealand's two-year swap rate slipped to 2.87 percent at 5pm in Wellington from 2.89 percent yesterday, and the 10-year swap rate declined to 3.65 percent from 3.68 percent.

The kiwi declined to 59.99 euro cents from 60.58 cents yesterday, and was almost unchanged at 42.43 British pence from 42.42 pence. It dropped to 81.56 yen from 82.20 yen yesterday.

(BusinessDesk)