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Kiwi gains ahead of expected OCR cut

NZ Newswire logoNZ Newswire 9/08/2016 Paul McBeth

The New Zealand dollar has gained as investors eye the Reserve Bank policy review which is expected cut interest rates and indicate more to come.

The kiwi rose to US71.55 cents at 8am on Wednesday in Wellington from US71.29c on Tuesday.

The trade-weighted index advanced to 75.97 from 75.82.

The Reserve Bank has indicated it will have to lower the official cash rate from its current 2.25 per cent level in a bid to deter investors from buying the kiwi, which has stayed higher than the central bank was expecting and pushed down inflation by making imports cheaper.

Traders have priced a cut as a foregone conclusion, with 73 per cent predicting governor Graeme Wheeler will lower the OCR by 25 basis points on Thursday, and 27 per cent picking he'll go even further by slicing by 50 points.

"The risks around this meeting are therefore likely tilted toward the RBNZ not sounding sufficiently dovish relative to these expectations," BNZ senior market strategist Kymberly Martin said in note. "The NZD/USD could gain a knee-jerk skip higher."

Mr Wheeler has had to contend with a hot property market where supply has struggled to match demand, while globally low interest rates have made New Zealand a stand-out for investors seeking real returns with its relatively high interest rate.

Better-than-expected US employment data last week stoked expectations the Federal Reserve will raise interest rates later this year, which MS Martin said had been the primary driver for the kiwi dollar.

"We would be surprised if its actions have any enduring impact on the NZD. Relative economic fundamentals, global risk appetite and evolving expectations for the US Fed will likely remain dominant drivers."

On Wednesday morning, the kiwi was little changed at 93.30 Australian cents from A93.37c on Tuesday. It traded at 72.94 yen from 72.97 yen and gained to 4.7622 Chinese yuan from 4.7473 yuan. It rose to 55.02 British pence from 54.83p and was little changed at 64.41 euro cents from 64.35c.

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