NZ dollar falls

The New Zealand dollar fell back to where it was before yesterday's interest rate cut on expectations a strong currency will ensure the Reserve Bank remains determined to narrow the country's interest rate advantage over its peers.

The kiwi dropped to 72.10USc at 8am in Wellington from 72.6USc  at 5pm, trading near the 72.02USc level it was at immediately before yesterday's rate cut. The trade-weighted index declined to 76.31 from 76.83.

The local currency gave up yesterday's gains when it shot to a 15-month high when Reserve Bank governor Graeme Wheeler lowered the official cash rate a quarter-point to 2%, disappointing some traders who had been expecting a bigger move. Mr Wheeler acknowledged that he has little control over currency markets but is trying to bring down the kiwi dollar, which has made it difficult for him to meet his inflation target by making imports cheaper.

"In a world of ultra-stimulatory central bank policies pulling global yields lower, there is almost insurmountable pressure for local policy to fall too, else risk an even stronger currency and weaker tradable inflation," ANZ Bank New Zealand senior economist Philip Borkin said in a note. "The Reserve Bank is in the process of narrowing yield differentials. But the New Zealand dollar is strong for reasons other than yield and will require a substantially stronger US dollar (which was stronger overnight) for a sustained move lower."

Oil prices rose 4.2% on reports Saudi Energy Minister Khalid al-Falih said oil producing nations would discuss the market situation and any possible action to stabilise prices at an informal meeting in Algeria next month. That lifted oil-linked currencies such as the Norwegian krone and the Canadian dollar, but other commodity-sensitive currencies such as the kiwi and Australian dollars were left out of the rally.

Government figures today are expected to show retail sales rose 0.9%  in the June quarter, continuing the country's pattern of strong consumption while a manufacturing gauge will likely show that sector in good heart.

The kiwi fell to 93.58Ac from 94.30Ac yesterday and dropped to 4.7777 Chinese yuan from 4.8209 yuan. It declined to ¥73.44 from ¥73.62 yesterday and was little changed at 55.65 British pence from 55.79 pence. The local currency decreased to 64.73 euro cents from 65 cents yesterday.

(BusinessDesk)

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