NZ dollar falls across the board after RBNZ's Orr keeps OCR at 1.75%, signals no change

Thursday 10th May 2018

The New Zealand dollar fell sharply against the Canadian dollar in a broad-based decline after the Reserve Bank kept interest rates at a record low and said the next move could be up or down. Canada's currency benefited from positive data and rising oil prices.

The kiwi dropped to 88.76 Canadian cents as at 5pm in Wellington from 89.78 Canadian cents just before the central bank's monetary policy statement. It fell to 69.12 US cents from 69.83 cents before the release and 69.64 cents yesterday.

New Reserve Bank governor Adrian Orr kept the official cash rate at 1.75 percent and said the direction of the next move is equally balanced and could be up or down. Its forecasts were downgraded with inflation seen returning to 2 percent - the midpoint of the RBNZ's 1 percent-to-3 percent target range - in December 2020 versus a prior forecast of September 2020. The RBNZ also predicts the OCR will rise to 1.9 percent in December 2019, having previously forecast an increase in June 2019. A full rate increase is still signalled by March 2020 when the benchmark rate is forecast to be 2 percent.

The kiwi "got smashed on that. There was also good data out of Canada overnight and higher oil prices are also very supportive for Canada. We are the cow economy and they are the oil economy," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank.

Oil prices pushed higher after US President Donald Trump's move to pull out of the Iran deal and re-impose sanctions on the Middle East nation. On the data front, the value of Canadian building permits rose 3.1 percent in March, more than economists’ forecasts for a gain of 2 percent, on increased plans to build apartment buildings in the provinces of Quebec and British Columbia, the Globe and Mail reported.

The kiwi also fared badly against the Australian dollar after the RBNZ statement, falling to 92.48 Australian cents from 93.68 cents yesterday. Australia's economy is typically linked with hard commodities due to its iron ore exports.

Domestically, Kelleher said news the cattle disease Mycoplasma bovis is being detected on more farms "has got to be a concern for the currency as well." Head of Biosecurity New Zealand Roger Smith told Parliament's primary production committee today that developments in the past six days had been a game changer in terms of the spread of the disease with confirmed infection in North Canterbury - a new region - and on a second North Island at near Pahīatua.

"I don't see how any of this is good for the gross domestic product or the economy," said Kelleher.

The local currency dropped to 4.3973 Chinese yuan from 4.4373 yuan yesterday and fell to 75.83 yen from 76.25 yen yesterday. It declined to 50.92 British pence from 51.46 pence yesterday and to 58.24 euro cents from 58.77 cents.

On a trade-weighted index basis it was at 72.44 from 73.13 late yesterday

New Zealand's two-year swap rate fell 6 basis point to 2.21 while 10-year swaps fell 4 basis points to 3.17 percent.

(BusinessDesk)

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