Dollar surges ahead of RBNZ interest rate decision

UPDATED: RBNZ: Growth outlook falling, more interest rate cuts on the way

The New Zealand dollar rose ahead of the Reserve Bank meeting this morning and optimism about global growth as China's government signalled it will support its flagging economy.

The kiwi climbed to 63.89USc at 8am in Wellington, from 63.72c at 5pm yesterday. The trade-weighted index rose to 69.60 from 69.30 yesterday.

Investors are favouring higher risk assets such as equities and currencies like the kiwi as they gain confidence about the outlook for Chinese growth.

China’s Finance Ministry says it will strengthen fiscal policy, boost infrastructure spending and speed up tax reform. This helped boost Chinese equities for a second day.

In New Zealand, the Reserve Bank is expected today to reduce its benchmark interest rate by a quarter point to 2.75%, although some expect governor Graeme Wheeler to be more sanguine about the outlook,

"The case for a cut is pretty compelling," ANZ Bank New Zealand senior economist Sharon Zollner and senior FX strategist Sam Tuck say.

"ANZ, like everyone else, is anticipating a 25 basis points cut to 2.75%, but suspects the market may be disappointed by a less dovish tone than expected when it comes to future moves."

The Reserve Bank will be weighing up an improvement in dairy prices, a sharply lower currency, high migration and a buoyant Auckland housing market against slower economic growth, higher unemployment, weak business confidence, low inflation and slowing growth in the country's major trading partners, the ANZ says.

Governor Wheeler will front a press conference at 9am and appear before parliament's finance and expenditure select committee at 1pm.

Other data scheduled for release in New Zealand today includes card spending and house sales for August.

The kiwi will probably trade between 62.80USc and 64.80c today, the ANZ says.

The New Zealand dollar rose to 91.04Ac from 90.38c yesterday ahead of Australian August employment data today.

The kiwi gained to 4.0741 yuan from 4.0609 yuan yesterday. China is scheduled to release inflation and producer price data for August today.

The local currency climbed to 76.97 yen from 76.60 yen yesterday, edged up to 41.59 British pence from 41.41 pence, and was little changed at 57.01 euro cents from 57.06 cents.

The Bank of England is expected to keep interest rates on hold at its meeting tonight, with traders looking for clues on the outlook for a hike.

(BusinessDesk)