Kiwi down 6.1% since last RBNZ meeting, little else changed

The New Zealand dollar was little changed in local trading as investors await Reserve Bank governor Graeme Wheeler's response to a 6.1 percent slide in the currency against the greenback since his last review.

The kiwi traded at 78.76 US cents at 5pm in Wellington from 78.65 cents at 8am and 78.80 cents yesterday. The trade-weighted index fell to 73.45 from 73.76 yesterday.

Mr Wheeler is expected to keep the official cash rate at a record-low 2.5 percent tomorrow, though traders will be looking to see whether he has changed his forecast track for the 90-day bank bill rate, seen as a proxy for the OCR.

Traders see no change at tomorrow morning's meeting and have priced in 24 basis points of increases in the coming year, according to the Overnight Index Swap curve.

The kiwi has tumbled in the past two months amid mounting speculation the US Federal Reserve will start unwinding its $US85 billion a month asset purchase programme, giving the RBNZ scope to hike rates if a heating local housing market starts fuelling inflation.

"We think it will be slightly hawkish, so interest rates will bounce and the kiwi will bounce," says Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "I don't think anyone will be doing anything overnight with the kiwi."

Last month, Mr Wheeler said the central bank has been intervening in foreign exchange markets to try and smooth the tops of its peaks and will continue to do so as long as it works. At the time he said the local currency was about 18 percent above its 15-year average.

Traders will also be looking for any clues on the central bank's willingness to use its macro-prudential tools to cool the housing market. Last month, Wheeler said if the property market loses some steam that raises the prospect of interest rates staying at their current level beyond this year.

The kiwi fell to 83.49 Australian cents from 83.69 cents yesterday, and fell to 75.99 yen from 77.34 yen. It slipped to 59.18 euro cents from 59.33 cents and decreased to 50.39 British pence from 50.56 pence.

(BusinessDesk)