NZ dollar heads for 1.9% weekly fall after RBNZ trims rate outlook

Friday 12th September 2014

The New Zealand dollar is heading for a 1.9 percent fall against the greenback this week after the Reserve Bank cut its forecast track for future rate hikes, eroding the appeal of the local currency.

The kiwi fell to 81.68 US cents at 5pm in Wellington from 83.26 on Friday in New York last week. It traded at 81.71 US cents at 8am and 81.87 cents yesterday. The trade-weighted index was at 78.43 from 78.38 yesterday, and is heading for a 0.4 percent weekly decline.

A BusinessDesk survey of 10 currency strategists and traders on Monday predicted the kiwi would trade between 82 US cents and 84.20 cents this week. Nine expect the currency to decline and one is picking a gain.

The kiwi touched a new seven-and-a-half month low of 81.57 US cents today after Reserve Bank governor Graeme Wheeler kept the official cash rate at 3.5 percent, while signalling a less aggressive rate hike track in the projected path of the 90-day bank bill rate, seen as a proxy for the OCR. Wheeler continued to talk down the kiwi dollar, calling its strength "unjustified and unsustainable" while declining to comment on whether the bank had been active in foreign exchange markets.

"It's quite an abrupt change in its behaviour - rates are certainly on hold for quite a long time now," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "Interest rates are certainly going to be subdued for a long time and that stops the carry trade in its tracks for the currency."

The kiwi dollar has been a favourite among international investors with New Zealand's rising interest rates offering bigger returns than major developed economies with interest rates at or near zero.

Government figures today showed food prices in August were cheaper than a year ago, while a bank survey reported a pick up in manufacturing activity last month, and Real Estate Institute data showed soft housing turnover.

Westpac's Speizer said the kiwi will continue its downward trend and should head towards 80 US cents by the end of the year on the softer interest rate track, and as upbeat US data fuels expectations the Federal Reserve will move away from its zero interest rates policy earlier and harder than previously anticipated. The Fed will review policy next week.

The local currency fell to 50.29 British pence at 5pm in Wellington from 50.54 pence yesterday ahead of next week's vote on Scottish independence. The latest YouGov poll for the Times and the Sun newspapers showed 52 percent support for the nation to remain in the United Kingdom.

The kiwi edged up to 87.61 yen at 5pm in Wellington from 87.53 yen yesterday, and climbed to 90.08 Australian cents from 89.11 cents. It declined to 63.19 euro cents from 63.43 cents.

BusinessDesk.co.nz

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