Kiwi pares gain as Reserve Bank outlines monetary policy dilemma
Governor Graeme Wheeler weighing up the competing inflationary effects of a heating property market and strong currency.
© All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.
The New Zealand dollar pared its gain against the greenback after Reserve Bank governor Graeme Wheeler kept the key interest rate on hold while he weighs up the competing inflationary effects of a heating property market and strong currency.
The kiwi traded at 79.20 US cents at 5pm in Wellington from 79.56 cents at 8am, and 78.76 cents yesterday. The trade-weighted index was 73.51 from 73.45 yesterday.
Mr Wheeler kept the official cash rate at 2.5 percent, saying he does not expect to raise it this year, while signalling a more aggressive path higher from mid-2015.
He reiterated the tensions he is juggling between a bubbling property market's potential to fuel debt-driven consumer spending if households feel wealthier, against the dampening effect of an "over-valued" kiwi on the price of imports.
The problem is exacerbated by an expectation that the trade-weighted index will rise by about 200 basis points, notwithstanding recent falls, seeing it average 77.5 in the June quarter this year, falling to 73.1 at the start of 2016.
"I don't see the alternative currency scenario [which spurs a rate cut] as particularly likely - I think housing will be a greater concern," says Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney.
"The Reserve Bank will want to hold off [from raising rates] as long as they can to stop New Zealand standing out" in a world with low interest rates.
The kiwi plunged as low as 74.64 yen, the lowest since January 24, trading at 74.98 yen from 75.99 yen yesterday as stock markets across Asia sank as investors reassessed their value.
The NZD increased to 83.74 Australian cents from 83.49 cents yesterday after government figures showed a lower rate of unemployment across the Tasman than expected.
It traded at 59.29 euro cents from 59.18 cents yesterday and increased to 50.50 British pence from 50.39 pence.
(BusinessDesk)
Paul McBeth
Wed, 11 Jul 2018
Wed, 11 Jul 2018
© All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.
Free News Alerts
Sign up to get the latest stories and insights delivered to your inbox – free, every day.
Kiwi pares gain as Reserve Bank outlines monetary policy dilemma
30113