NZ dollar falls; traders twitchy on OCR bet; drought concerns

The New Zealand dollar fell as traders bet the Reserve Bank will cut interest rates this week, and mid-concern an El Nino weather pattern may further dent the slowing economy.

The kiwi slipped to 62.57USc at 8am in Wellington, from 62.6USc at 5pm yesterday on lower volumes due to the US Labor Day holiday on Monday. The trade-weighted index declined to 68.41 from 68.54 yesterday.

Traders have put 78% odds of Reserve Bank governor Graeme Wheeler cutting the official cash rate a quarter point to 2.75% on Thursday, as economic growth slows following a slump in dairy prices, the nation's largest export commodity. Concern is also mounting that an El Nino weather pattern may cause a drought this summer, weighing on agricultural production and economic growth.

"This week is all about the Reserve Bank," said OMF senior dealer, foreign exchange, Stuart Ive. "The kiwi is clearly suffering from pre-OCR nerves so the pressure remains. The market is fully expecting governor Graeme Wheeler to cut by 25 basis points and come out with a dovish statement afterward.

"The market is very much focused now on this growing El Nino effect. There does appear to be a growing momentum behind that at the moment. It's a negative for the country. That means that the kiwi dollar remains under pressure."

OMF's Mr Ive said the potential for drought is likely to be "on the radar" of the Reserve Bank and could be raised as a concern on Thursday.

The kiwi has support at 62.35USc and faces resistance at 62.80USc, Mr Ive said.

In New Zealand today, data is released on second-quarter manufacturing, which will help economists firm up their expectations for GDP over the period.

This afternoon, all eyes will be on Chinese August trade data. Weak import data would probably weigh on the kiwi and the Aussie, Ive said.

The New Zealand dollar slipped to 90.28Ac from 90.54Ac yesterday. In Australia today, the NAB August business confidence survey is published and Reserve Bank of Australia head of financial stability Luci Ellis is speaking on 'Property Markets and Financial Stability' in Sydney.

The kiwi fell to 56.03 euro cents from 56.24 cents yesterday ahead of the release of the second estimate of eurozone GDP.

The local currency declined to 40.96 British pence from 41.25p yesterday, edged lower to ¥74.66 yen from ¥74.84, and dropped to 3.9822 yuan from 3.9905 yuan.

(BusinessDesk)