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Dollar holds gains ahead of line-call official cash rate review

Kiwi traded at 71.84USc at 5pm in Wellington from 71.31USc at 8am.

Paul McBeth
Wed, 10 Jun 2015

The New Zealand dollar held gains in local trading, with investors divided on whether Reserve Bank governor Graeme Wheeler will cut interest rates to stimulate the economy and lift inflation from its near-zero level in tomorrow morning's three-monthly monetary policy statement.

The kiwi traded at 71.84USc at 5pm in Wellington from 71.31USc at 8am, up from 71.08USc yesterday. The trade-weighted index increased to 74.71 from 74.42.

Traders are pricing in a 40% chance Mr Wheeler will cut the 3.5% official cash rate by 25 basis points, according to the Overnight Index Swap curve. Measures by the Reserve Bank and government to cool a red-hot Auckland property market were seen as giving Mr Wheeler some room to cut rates as inflation tracks below the bank's target band.

"I think they won't cut. It would add too much fuel to the property market, which is what they're trying to avoid," said Grant Bodle, senior FX dealer at HiFX in Auckland. "If they cut, you'll see the kiwi sold off again; and if they don't, which is what we're picking, I would expect a 30-40 point bounce."

Government data today showed core retail spending on electronic cards rose 0.4% in April, with increased buying of consumable and durable products offsetting weakness elsewhere.

New Zealand's two-year swap rate slipped to 3.33% at 5pm in Wellington from 3.35% yesterday, and the 10-year swap rate advanced to 4.13% from 4.06%.

The kiwi dropped to ¥87.97 at 5pm in Wellington from ¥88.52 yesterday after Bank of Japan governor Haruhiko Kuroda told policymakers the nation's real effective exchange rate, which adjusts for inflation and trade, was very weak following his money printing programme to reinvigorate the world's third-biggest economy.

The local currency gained to 92.92Ac from 92.40Ac yesterday after Reserve Bank of Australia governor Glenn Stevens said the bank was open to a third rate cut this year but was unsure how effective it would be.

The kiwi rose to 4.4363 Chinese yuan from 4.4094 yuan yesterday, and gained to 63.29 euro cents from 62.84 cents. It was little changed at 46.31 British pence from 46.31 pence.


Paul McBeth
Wed, 10 Jun 2015
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Dollar holds gains ahead of line-call official cash rate review