NZ dollar little changed as investors await Reserve Bank interest rate decision

Thursday 24th July 2014

The New Zealand dollar is little changed as investors are reluctant to take positions ahead of the Reserve Bank's decision on interest rates this morning.

The kiwi was at 86.87 US cents at 8am in Wellington, from 86.81 cents at 5pm yesterday. The trade-weighted index was little changed at 80.86 from 80.82 yesterday.

Reserve Bank governor Graeme Wheeler is expected to hike the official cash rate for a fourth consecutive meeting today to 3.5 percent in an attempt to slow inflation in an expanding economy driven by the rebuilding of earthquake damaged Christchurch, a strong housing market, elevated commodity prices and increased migration. Still, economists expect the bank may signal a pause in its tightening cycle at today's meeting as it assesses the impact of the rate rises which have pushed up the currency.

"Today it is all eyes on the RBNZ meeting," Kymberly Martin, senior market strategist at Bank of New Zealand, said in a note. "We anticipate the RBNZ will raise the OCR by 25 basis points. Although this outcome is around 85 percent priced in by the market, it may still cause an initial knee-jerk pop higher in the NZD/USD.

"Resumption of its tightening cycle will be dependent on developments over coming months," Martin said. "This broader message will likely be less supportive of the NZD/USD, given the market still prices some chance of further rate hikes in September and October."

The kiwi has support at 86.50 US cents and faces resistance at 87.20 cents, Martin said.

Later this morning, New Zealand's trade balance for June may show weaker export receipts.

This afternoon, traders will be eyeing the Chinese HSBC flash manufacturing PMI, which may show a slight improvement to 51.2 from 50.7 where a reading above 50 indicates expansion.

The New Zealand dollar slipped to 91.78 Australian cents from 92 cents yesterday, and touched a six-week low of 91.76 cents after better-than-expected Australian inflation data pulled back expectations the Reserve Bank of Australia may cut interest rates further.

The kiwi advanced to 50.96 British pence from 50.84 pence yesterday after the Bank of England minutes were more dovish than expected, indicating the members saw little signs of inflationary pressures building and thought a premature tightening in monetary policy might leave the economy vulnerable to shocks.

The local currency edged up to 64.51 euro cents from 64.47 cents yesterday and advanced to 88.15 yen from 88.03 yen.

BusinessDesk.co.nz

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