Kiwi holds near three-month high on Bollard speech, US jobs

BUSINESSDESK: The New Zealand dollar held near a three-month high after Reserve Bank governor Alan Bollard said markets are pricing in even lower interest rates and borrowing costs have stayed low for longer than was envisaged at the time of the global financial crisis.

The kiwi traded at 81.86 US cents at 5pm in Wellington, little changed from 81.89 cents at 8am and unchanged from the close of trading in New York on Friday. The trade-weighted index traded at 73.49 from 73.52 last week.

New Zealand's official cash rate has been kept at a record low 2.5% as the central bank contends with high levels of private debt that were built up during the boom period of the past decade, Dr Bollard told a business audience in Auckland. 

That surprised policymakers, who have kept the benchmark rate low in a bid to stoke economic growth against the backdrop of deteriorating global markets and the cost of rebuilding New Zealand's second-biggest city.

"The Reserve Bank of New Zealand is continuing to grapple with the grinding adjustment process. He's got deleveraging taking place which is slowing growth, but that slow growth doesn't hold down inflation pressures," said Chris Tennent-Brown, FX economist at Commonwealth Bank of New Zealand.

"The kiwi is in this little range south of 82 US cents."

Traders are pricing in an increase of one basis point in the OCR over the next 12 months, based on the Overnight Interest Swap curve.

Dr Bollard's academic speech didn't dent upbeat investor sentiment that was stoked by better-than-expected US employment figures and renewed hopes Spain will formally seek financial aid to shore up the Mediterranean nation's spiralling debt woes.

Markets are gearing up for the Reserve Bank of Australia's monetary policy review where policymakers are expected to keep the target cash rate at 3.5%.

Thursday will be the focus this week with Australian and New Zealand employment figures scheduled for release ahead of a Chinese dump of data including retail sales, industrial production and consumer and producer price indexes.

Three of five analysts surveyed by BusinessDesk predict the kiwi may gain this week.

New Zealand's currency was little changed at 77.44 Australian cents from 77.47 cents last week, and edged down to 64.21 yen from 64.23 yen. It slipped to 66.05 euro cents from 66.12 cents last week and gained to 52.50 pence from 52.36 pence.