Volatile day for kiwi dollar as central banks drive the action

The New Zealand dollar fell to its lowest level in more than a week against the yen after the Bank of Japan surprised the market by not expanding its monetary stimulus, rounding out a day of volatility tied to central bank actions.

The kiwi fell as low as 75.16 yen and was at 75.54 yen at 5pm in Wellington, down from 77.09 yen before the BOJ statement and from 76.37 yen late yesterday. The local currency rose to 69.33 US cents, having surged after the Reserve Bank of New Zealand statement, from 68.81 cents yesterday.

The yen climbed against the greenback and the euro after the BOJ doused speculation it would add to its stimulus measures. Earlier, the Reserve Bank kept the official cash rate unchanged at 2.25 percent and gave no indication it was in a hurry to cut interest rates, driving the kiwi up more than 1 percent. The kiwi was weaker at 6am, when the US Federal Reserve gave a mixed assessment of local and global conditions.

"It has been a day of central banks and only significant in terms of how they contrasted with people's expectations," said Nick Tvedt, senior dealer at NZ Forex. The kiwi now looked "vulnerable to a selloff" after its post-RBNZ rally, given the statement "was reasonably dovish."

The RBNZ statement keeps alive the prospect that governor Graeme Wheeler will cut the official cash rate a quarter point to 2 percent as soon as the June 10 monetary policy statement, although his language today was no more emphatic about easing than in March, when he surprised the market with a quarter-point cut. However, he did note today that house price inflation may be picking up in Auckland, having said it was moderating last month, and repeated that pressures were building in other regions.

Wheeler's statement came three hours after the Federal Open Market Committee kept the target range for its overnight lending rate at 0.25 percent to 0.5 percent, as expected, noting an improvement in the US labour market and saying it remained confident inflation would rise to its 2 percent target over the medium term. It dropped a reference from its previous statement about global economic and financial risks but added it was closely monitoring offshore developments.

The trade-weighted index rose to 73.14 from 72.46 before the RBNZ statement and from 72.67 yesterday.

The kiwi rose to 91.08 Australian cents from 90.12 cents late yesterday. It gained to 47.64 British pence from 47.16 pence, rose to 61.16 euro cents from 60.83 cents and rose to 4.4967 yuan from 4.4628 yuan.

The two-year swap rate ended the day up 1 basis point at 2.21 percent and the 10-year swaps fell 3 basis points to 2.96 percent.

(BusinessDesk)