NZ dollar falls on weaker Chinese manufacturing, faster Aust inflation; RBNZ looms

Wednesday 24th July 2013

The New Zealand dollar fell after figures today showed Chinese manufacturing was weaker than expected and Australian inflation was faster than anticipated, while at home traders look ahead to the Reserve Bank's interest rate review tomorrow.

The kiwi fell to 79.66 US cents at 5pm in Wellington from 79.89 cents at 8am and 79.96 cents yesterday. The trade-weighted index declined to 75.18 from 75.43 yesterday.

The flash HSBC/Markit Purchasing Managers' Index indicated China's manufacturing activity slowed to an 11-month low in July amid faltering new orders and a weaker labour market, sapping optimism about New Zealand's second-biggest trading partner. Australian Bureau of Statistics figures showed inflation across the Tasman 0.6 percent in the second three months of the year, faster than expected, and eating into the prospect of another rate cut by Australia's central bank. The kiwi fell to xx Australian cents from 86.20 cents yesterday.

That comes ahead of the Reserve Bank of New Zealand monetary policy review tomorrow, where governor Graeme Wheeler is expected to keep the benchmark rate on hold at 2.5 percent, and may try to talk down interest rates, which have been creeping up in recent months in anticipation a weaker currency and booming housing market will start fuelling inflation. Traders are pricing in 39 basis points of increases to the official cash rate over the next 12 months, according to the Overnight Index Swap curve.

"There's a chance of another wee push lower in the kiwi on the Reserve Bank," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "The RBNZ will probably play the same story as it did in June, but there's a risk they might try to nudge interest rates a little lower, because they've crept up since the last meeting."

Speizer said the currency may trade between 79.50 US cents and 80.15 cents ahead of the central bank meeting, and still has room for a short-term lift.

"This is a temporary bounce, and once it's done we resume the downtrend and go into the 70s (US cents)," he said.

New Zealand trade figures today showed an unexpected monthly surplus of $414 million, when economists were picking a deficit. The surprise came from a 25 percent slide in oil imports, which fell faster than sales of local dairy products, the country's biggest export.

The kiwi slipped to 79.38 yen at 5pm in Wellington from 79.50 yen yesterday, and fell to 60.31 euro cents from 60.56 cents. It edged lower to 51.86 British pence from 51.99 pence yesterday.

BusinessDesk.co.nz

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