NZ dollar gains from post-Fed low, traders assess RBNZ's 'watch and wait'

Thursday 29th October 2015

The New Zealand dollar rebounded from its selloff at the start of the day when the US Federal Reserve signalled it may raise interest rates in December, as traders assessed the scope for the local Reserve Bank to cut its benchmark rate this year.

The kiwi traded at 66.66 US cents as at 5pm in Wellington, having tumbled after the Fed statement and then initially dropped as low as 66.18 cents after the Reserve Bank of New Zealand statement, from 67.25 cents late yesterday. The trade-weighted index declined to 72.29 from 72.73 yesterday.

The RBNZ kept the official cash rate at 2.75 percent and reiterated it may cut interest rates again. But governor Graeme Wheeler added that he is prepared to "watch and wait" to see how economic data plays out before committing to another rate cut. Traders took that to mean there was no rush to drive the kiwi dollar lower. The Reserve Bank's monetary policy statement is released on Dec. 10 and the Fed's next statement is on Dec. 17.

"We could see a double whammy, where the RBNZ cuts and the Fed hikes rates," said Tim Kelleher, head of institutional sales at ASB Bank. "The kiwi will remain on the back foot ahead of December."

Kelleher said the kiwi dollar is probably capped at 70 US cents and supported at 65 cents. If it broke through 65 cents it would next target 63 cents, he said.

The kiwi initially dropped after the Federal Open Market Committee left interest rates unchanged following a two-day meeting, while dropping reference to concern about recent global economic factors pushing down inflation, and was more upbeat in its assessment of household spending and business investment. It rebounded after the Reserve Bank's statement.

The New Zealand dollar fell to 93.71 Australian cents from 94.44 cents yesterday, weakened to 43.65 British pence from 43.93 pence, fell to 80.40 yen from 80.92 yen. It fell to 4.2355 yuan from 4.2755 yuan and was little changed at 60.98 euro cents from 60.96 cents.

The two-year swap rate rose 1 basis point to 2.71 percent and the ten-year swap rate was unchanged at 3.46 percent.

BusinessDesk.co.nz

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