Dollar edges lower ahead of RBA interest rate review

Tuesday 3rd November 2009

The New Zealand dollar edged lower as concerns about the state of the global financial sector weigh on investors' appetite for higher-yielding, riskier assets, ahead of the Reserve Bank of Australia's review of monetary policy today.

Australia's central bank was the first G-20 nation to tighten monetary policy last month, and Governor Glenn Stevens is expected to hike rates another 25 basis points to 3.5% today.

This comes amid ongoing concerns about the state of the world's financial sector following century-old lender CIT Group filing for bankruptcy.

Stocks on Wall Street were mixed after data showed the state of manufacturing in the world's largest economy has expanded for its third straight month.

"The focus is going to be on what the RBA says in its comments, and whether we'll see it continue to be more aggressive, or if it will pause to assess how its rate hikes have gone," said Philip Borkin, economist at ANZ National Bank.

"The kiwi was very choppy and followed the performance of equities - the Dow came under pressure and that continued the risk appetite theme."

The kiwi dropped to 71.6 6 US cents from 72.21 cents yesterday and declined to 64.58 on the trade-weighted index, or TWI, a measure of the currency against a basket of five major trading partners, from 65.01.

It sank to 64.69 yen from 65.17 yen yesterday, and declined to 79.40 Australian cents from 79.61 cents. It slipped to 48.50 euro cents from 48.87 cents and decreased to 43.70 pence from 44.09 pence. Borkin said the currency may trade between 71.30 US cents and 72.15 cents today, and will follow Asian equity markets while it waits for the RBA decision this afternoon.

The Quarterly Employment Survey will probably show wages continued to fall in the three months through September, Borkin said, and probably won't have much of an impact on the New Zealand dollar. "We expect reasonably soft wage data, with wages remaining pretty subdued for the next while as unemployment continues to rise," he said.

The Household Labour Force Survey, out on Thursday, will probably show the jobless rate rose to 6.4%, according to a Reuters survey. Fonterra's online dairy auction takes place tomorrow, and could show ongoing strength in commodity prices, according to Borkin.

"You'd expect dairy prices to fall after they risen over 65% since July, but anecdotally, what we're hearing suggests prices are still pretty firm," he said.

Businesswire.co.nz

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