NZ dollar drifts as central bank reviews approach

The New Zealand dollar was little changed as investors remain cautious before central bank Thursday when the Reserve Bank joins the US Federal Reserve and Bank of Japan in reviewing monetary policy.

The kiwi traded at 68.45USc at 8am in Wellington from 68.57USc at 5pm yesterday when it was unchanged from the New York close on Friday. The trade-weighted index declined to 72.27 from 72.50 last week.

Traders are pricing in a 55% chance Reserve Bank governor Graeme Wheeler will cut the official cash rate to 2% on Thursday to try to spur inflation back within his 1-3% target band. Potentially easing some of the tension Mr Wheeler faces when judging whether a rate cut would overheat the nation's bubbling housing market, Prime Minister John Key said his government is looking at introducing a land tax on overseas property buyers.

The US Federal Open Market Committee is expected to keep its gradual path to higher rates intact depending on how the data plays out while speculation is mounting that the Bank of Japan may expand its asset purchase programme.

"While the Fed’s decision to leave rates unchanged and maintain its 'data-dependent' line is a straightforward call, no one is really certain what the Reserve Bank will do," Bank of New Zealand currency strategist Jason Wong said in a note. "Our out-of-consensus call for the Reserve Bank to cut rates and keep the door open for more would help the New Zealand dollar soften on the day while the bank remaining on the sidelines could encourage a move to retest the 0.70USc handle."

The kiwi fell to 47.28 British pence from 47.47 pence yesterday and declined to 60.77 euro cents from 60.94 cents as the British pound rose to a two-month high on dwindling expectations the UK will quit the eurozone. During his visit to the UK, US President Barack Obama urged British citizens to vote to stay in the shared economic zone.

The local currency was stable at ¥76.13 from ¥76.10 yesterday and slipped to 88.79Ac from 88.97Ac. It decreased to 4.4450 Chinese yuan from 4.4567 yuan yesterday.

(BusinessDesk)