NZ dollar declines ahead of Reserve Bank interest rate decision, investors eye outlook

Thursday 12th December 2013

The New Zealand dollar declined ahead of the Reserve Bank decision on interest rates today where investors will be eyeing signals for when hikes may start next year.

The kiwi slipped to 82.36 US cents at 8am in Wellington, from 82.78 cents at 5pm yesterday. The trade-weighted index weakened to 77.21 from 77.53.

Reserve Bank governor Graeme Wheeler is expected to keep the official cash rate at 2.5 percent at his last monetary policy statement of the year at 9am today, while he balances the need for future hikes to stave off the threat of inflation against attracting investors to an already strong currency. Traders will then look ahead to next week's Federal Reserve Open Market Committee meeting for indications of when the US central bank plans to pull back on its stimulus programme.

"The RBNZ will be the main driver today with a market positioned for some guidance about when the 2014 rate hikes will start," Carrick Lucas, strategist at ANZ New Zealand, said in a note. "Should we not receive any new information, the NZD will remain capped into the FOMC next week. Signs the RBNZ is considering January hikes would support NZD, whilst confirmation of March should leave the NZD unchanged."

Traders have priced in 111 basis points of increases to New Zealand's official cash rate over the coming year, according to the Overnight Index Swap curve, though Wheeler may have to trim his track for future hikes given the persistent strength of the currency after the Federal Reserve didn't start unwinding its US$85 billion asset purchase programme in September. The quantitative easing has weakened the greenback by flooding the market with US dollars.

Investors will also be looking out for Australian employment figures at 1:30pm New Zealand time today as a gauge of how quickly the economy is slowing across the Tasman. The kiwi advanced to 90.77 Australian cents at 8am in Wellington from 90.62 cents at 5pm yesterday.

The New Zealand dollar slipped to 59.70 euro cents from 60.15 cents yesterday and dropped to 50.25 British pence from 50.33 pence. It weakened to 84.51 yen from 84.92 yen yesterday.

BusinessDesk.co.nz

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