Dollar climbs after RBNZ keeps rates unchanged

Thursday 11th June 2009

The New Zealand dollar climbed after the central bank held interest rates at 2.5% and said there are prospects for a slow recovery, increasing the prospects that Governor Alan Bollard won’t cut rates again in this easing cycle.

Reserve Bank Governor Alan Bollard told reporters in Wellington that the bank is unlikely to intervene in the currency market to drive the kiwi dollar lower, even though its recent strength “creates an unhelpful tension with our projections.” He predicts the kiwi will stay around current levels in coming months before depreciating.

“I would have expected more displeasure” from the Governor over the high currency, but he may deem it beyond his control, said Imre Speizer, currency strategist at Westpac Banking Corp.

The kiwi jumped to 63.29 U.S. cents from 62.68 cents immediately before the announcement, and traded at 63.26 cents yesterday. It rose to 60.08 on the trade-weighted index, or TWI, from 59.39 before the statement, and was at 59.78 yesterday.

The New Zealand dollar gained to 62.16 yen from 61.37 before the statement, and traded at 61.90 yen yesterday. It rose to 78.85 Australian cents from 77.94 cents immediately before the MPS and was down from 78.07 cents yesterday. Against the euro, it climbed to 44.25 euro cents from 44.74 cents before the statement, and from 44.89 cents yesterday.

Speizer said the currency may push up to 63.50 US cents when Asian markets begin trading and see the central bank’s decision to hold rates as a positive for the kiwi dollar. He doubts the positive bias will be sustained into next week, when global economic forces resume their dominance over the currency market.

The Federal Reserve’s Beige Book business survey showed the US recession may be abating in five of 12 Fed districts as the outlook for companies improved. The greenback gained against the euro as the yield-premium offered on 10-year Treasuries widened against German bunds to the most since October 2007.

Businesswire.co.nz

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