Dollar holds below US82c following RBNZ review

The New Zealand dollar held below 82 US cents overnight after the Reserve Bank yesterday reiterated that is too high and signalled interest rates would remain on hold for longer and wouldn't rise as much as previously thought.

The kiwi slipped to 81.71 US cents at 8am in Wellington from 81.87 cents at 5pm yesterday and 82.20 cents immediately before the Reserve Bank's statement at 9am yesterday. The trade-weighted index was at 78.41 from 78.38 yesterday.

The New Zealand dollar fell to its lowest level in more than seven months after Reserve Bank governor Graeme Wheeler yesterday kept the benchmark interest rate on hold as expected, while pulling back expectations for inflation and the forecast track for the 90-day bank bill rate, seen a proxy for the official cash rate. A stronger US dollar also weighed on the kiwi, as investors speculate strength in the US economy may prompt a more hawkish statement from the Federal Reserve next week.

The kiwi "has just been overwhelmed by Wheeler's statement yesterday and further nudged down by the stronger US dollar," said Bancorp Treasury Services client advisor Peter Cavanaugh. "It's difficult to see it rising from here in the current environment."

Wheeler also kept his heightened rhetoric in talking down the currency, reiterating its persistent strength "unjustified and unsustainable."

Traders are looking ahead to next week's Fed meeting and all eyes will be on any clues with regards to the timing of an interest rate increase. The Fed is on track to end its monthly bond-buying program, currently at US$25 billion, in October.

The outlook for prices of New Zealand's main commodities will also be closely watched by currency strategists, Bancorp's Cavanaugh said.

Today, New Zealand reports are released on manufacturing activity, and food and housing prices..

The New Zealand dollar weakened to 50.38 British pence from 50.54 pence yesterday, dropped to 63.25 euro cents from 63.43 cents, rose to 89.88 Australian cents from 89.11 cents and was little changed at 87.54 yen from 87.53 yen.

(BusinessDesk)