Dollar regains some ground following post-OCR announcement slump

The New Zealand dollar regained some ground following a sharp sell-off spurred by the Reserve Bank statement yesterday, although it under-performed the Australian dollar as market sentiment improved overnight.

The kiwi dollar rose to 63USc as at 8:30am in Wellington, from 62.62USc late yesterday and from 63.85USc immediately before the Reserve Bank's monetary policy statement.

Stocks on Wall Street gained overnight, with the Standard & Poor's 500 Index up 0.5%. The US Dollar Index fell, while the Australian dollar was the best performer following figures that showed that economy added 17,400 jobs in August, while the jobless rate fell to 6.2%. Traders see just a 22% chance that the Reserve Bank of Australia cuts interest rates again, while Reserve Bank governor Graeme Wheeler indicated he has another cut up his sleeve after yesterday's quarter point cut to 2.75%.

The kiwi "under-performed, mainly due to a more dovish than expected Reserve Bank but managed to stabilise around the 0.63 level," Westpac Banking Corp strategist Imre Speizer said in a note.

In the briefing that followed the release of the MPS yesterday, Mr Wheeler cited among main downside risks the potential for the El Nino weather pattern to hurt farm output over the summer and either for the Chinese economy to slow more than expected or for there to be a sharp devaluation of the yuan. In the statement, he said some further easing was likely, dependent on the flow of data.

"This was more direct than we/the market had feared," said Kymberly Martin, a strategist at Bank of New Zealand.

The trade-weighted index edged up to 68.41 from 69.30. The central bank yesterday lowered its projected track for the TWI, which it sees averaging 67.9 in the fourth quarter, down from its June forecast of 73.6.

The New Zealand dollar dropped to 88.85Ac from 89.49Ac yesterday and rose to 4.0079 yuan from 3.9986 yuan. The local currency rose to ¥75.82 yen from ¥75.54 yen and was little changed at 40.70 British pence from 40.79p. It fell to 55.74 euro cents from 55.86 cents.

(BusinessDesk)