NZ dollar gains ahead of OCR review, rises vs. pound on UK recession

Thursday 26th July 2012

The New Zealand dollar rose against the greenback ahead of the central bank's review of interest rates and strengthened against the pound after figures showed a deeper than expected UK recession.

The kiwi dollar rose to 78.88 US cents from 78.31 cents at 5pm yesterday. The local dollar gained to 50.87 British pence from 50.45 pence.

The kiwi dollar benefitted from a slight improvement in risk appetite overnight after European Central Bank council member Ewald Nowotny argued the region's rescue fund should get a banking license. It gained against the pound as figures showed the UK economy shrank 0.7 percent in the second quarter, more than three times the expected contract. In New Zealand, the Reserve Bank is expected to keep the official cash rate at 2.5 percent at its review this morning.

"We expect a fairly neutral statement," said Kymberly Martin, a strategist at Bank of New Zealand. "It is unlikely to do too much to challenge current market expectations for the OCR outlook."

Governor Alan Bollard is likely to take comfort from figures showing annual inflation is sitting right at the bottom of his 1 percent-to-3 percent target range by flagging no need to move on interest rates any time soon. He's also expected to reiterate the threats posed by Europe to global growth.

The trade weighted index rose to 71.54 from 71.29 and was little changed at 76.42 Australian cents from 76.48 cents.

The local currency gained to 61.66 yen from 61.21 yen and rose to 64.90 euro cents from 64.83 cents.

BusinessDesk.co.nz

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