NZ dollar climbs to 16-mth high on TWI after Wheeler rules out rate cut

Friday 7th December 2012

The New Zealand dollar climbed to a 16-month high on a trade-weighted basis after investors piled into currency after Reserve Bank governor Graeme Wheeler yesterday all-but ruled out a rate cut as he zeroes in on potential inflation emerging in the country's housing market.

The trade-weighted index rose as high as 74.45, the highest level since August last year, and traded at 74.36 at 8am in Wellington from 74.03 yesterday. The kiwi rallied to 83.12 US cents from 82.87 cents yesterday.

RBNZ's Wheeler kept the official cash rate at 2.5 percent and told reporters it will stay there until the end of 2013 as he keeps tabs on an Auckland property market that's heating up and building inflation pressures in the Canterbury rebuild. The bank hiked its projections for the TWI and sees it holding above 73 until December 2013, and falling to 71.40 in early 2015.

"The RBNZ gave the market the green light to keep buying the kiwi and that's what they've done," said Mike Jones, currency strategist at Bank of New Zealand in Wellington. "The currency looks very strong and completely shook off a near 1 cent collapse in the euro."

The kiwi may trade between 82.85 US cents and 83.50 cents today as investors await US employment figures in the Northern Hemisphere session, and as traders wait for American legislators to strike up a deal to prevent the fiscal cliff of $607 billion in tax increases and spending cuts from kicking in next year.

"That may also keep investors reluctant to push the kiwi above 83.50 US cents," Jones said.

The Bank of England and European Central Bank both kept their respective monetary policies unchanged, though the ECB cut its growth and inflation forecasts. The kiwi jumped to 64.17 euro cents from 63.50 cents yesterday, and advanced to 51.80 British pence from 51.52 pence.

The kiwi dollar rose to 79.33 Australian cents from 79.19 cents yesterday, and gained to 68.46 yen from 68.38 yen.

BusinessDesk.co.nz

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