Kiwi holds gains as RBNZ rate review looms

The New Zealand dollar held its overnight gains in the local trading session as traders prepare for Reserve Bank governor Graeme Wheeler's maiden monetary policy statement, when he is expected to keep interest rates on hold.

The kiwi traded at 82.47 US cents at 5pm in Wellington from 82.43 cents at 8am, up from 82.29 cents yesterday. The trade-weighted index increased to 73.53 from 73.45.

RBNZ governor Wheeler is expected to keep the official cash rate at 2.5% in his first full monetary policy review, while noting the deteriorating economic data in recent months.

Traders are anticipating Mr Wheeler will talk about the currency after he told reporters last month at the financial stability review he would discuss the kiwi at tomorrow's MPS.

"There's quite a good chance the rate track will further flat line or go downward sloping in contrast to upward sloping which is indicative of a tightening bias," says Mike Jones, currency strategist at Bank of New Zealand in Wellington.

"If Wheeler puts markets on notice, that would see the currency fall – anything short of that would be a non-event."

The currency may trade between 82.05 US cents and 82.90 cents in the Northern Hemisphere trading session, he says.

The RBNZ meeting comes two days after the Reserve Bank of Australia cut the target cash rate a quarter point to 3%, matching a five-decade low not seen since the depths of the global financial crisis.

Government figures today showed Australia's economy grew 0.5% in the September quarter, broadly in line with expectations. The kiwi traded at 78.70 Australian cents from 78.73 cents yesterday.

New Zealand construction work reported its biggest gain in a decade in the third quarter, rising 9.6%,  according to government data. The increased activity was underpinned by the Canterbury rebuild, which is slowly gathering pace and Auckland's booming property market, which is beset by limited supply.

The kiwi jumped 0.6%against the yen after Bank of Japan deputy governor Kiyohiko Nishimura said the central bank will take decisive action if the economic outlook deteriorates and is focusing on downside risks to the world's third biggest economy.

New Zealand's currency rose to 67.79 yen from 67.57 yen yesterday. It traded at 62.90 euro cents from 62.99 cents yesterday and rose to 51.19 British pence from 51.09 pence.

(BusinessDesk)