Kiwi treads water in holiday trade ahead of OCR review

Monday 28th January 2013

The New Zealand dollar was mixed in a holiday-affected session on Monday ahead of the official cash rate review on Thursday.

Both the kiwi and aussie dollars were weak against a resurgent euro.

The euro hit an 11-month high versus the dollar on Friday after the European Central Bank said banks would pay back a greater-than-expected 137 billion euros in loans next week, a sign of strength in the financial system, Reuters reported.

The kiwi was at 62.16 euro cents at 5pm, barely changed from 62.15 at 8am and 62.60 on Friday.

"European banks are repaying money because they don't need it. They can get it cheaper elsewhere," one dealer said.

The kiwi traded in a narrow range before settling at 83.59US cents at 5pm from 83.50 cents at 8am and 83.63 cents at 5pm on Friday.

While tensions are easing in Europe, the BNZ says they are stirring in New Zealand with respect to monetary policy.

"We expect Reserve Bank of New Zealand governor, Graeme Wheeler, to play things down the middle at Thursday's official cash review, keeping the official cash rate at 2.50 percent and his rhetoric appropriately vague and open-ended.

"But, make no mistake, tensions are brewing," BNZ strategists said.

There are lots to reasons to keep interest rates down as well as emerging trends that suggest they should rise.

"We suspect he will not want to shift market pricing to any material degree. As much as he's not the dove Bollard was, nor does that make him an outright hawk. It's all relative," BNZ said.

They said the market may also learn more about Wheeler's leanings when he delivers an on-the-record speech to the Canterbury Employers' Chamber of Commerce on Friday.

"This customary new year address tends to deal with big-picture issues and trends."

A fall in the performance of services index to 51.5 in December from 54.2 in November revealed today did not alter the broad outlook for economic growth.

Foreign exchange dealers are also monitoring the discovery of traces of Dicyandiamide, or DCD, in New Zealand milk products and say the next Fonterra milk powder auction will be interesting next Tuesday, Feb 5.

"While it is clearly something for the involved companies and government agencies to manage from a public relations perspective, our understanding is that it is not any genuine food safety concern," BNZ said.

The kiwi was at 76.13 yen at 5pm from 75.67 yen at 5pm on Friday.

It was at 80.22 Australian cents from 80.08 cents on Friday and was at 53.06 British pence from 53.02 pence.

The trade-weighted index was at 75.34 from 75.42.

(BusinessDesk)

BusinessDesk.co.nz

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