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NZ dollar gains ahead of OCR statement

NZ NewswireNZ Newswire 10/08/2016 Paul McBeth

© Bloomberg The New Zealand dollar rose ahead of Thursday's Reserve Bank monetary policy statement, where governor Graeme Wheeler is expected to cut the official cash rate and signal more will follow.

The kiwi rose to 72.13 US cents at 5pm in Wellington from 71.55 cents at 8am and 71.29 cents on Thursday. The trade-weighted index advanced to 76.28 from 75.82 yesterday.

The Reserve Bank last month signalled intentions to drop the official cash rate as a persistently high kiwi dollar made imports cheaper, making it more difficult for Wheeler to lift inflation into his target band of 1-to-3 per cent. Traders have priced in a cut as a foregone conclusion, with 76 per cent picking the OCR will go to 2 per cent tomorrow and 24 per cent picking a 50 basis point cut to 1.75 per cent.

Wheeler "really needs to deliver a very strong message tomorrow," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "If he really wanted to be ultra-positive in terms of getting the currency lower he could pull a 50 point cut out of the bag."

OMF's Ive expects Wheeler will cut by 25 basis points and lower the track of the 90-day bank bill rate, seen as a proxy for the OCR, to indicate more reductions will be forthcoming.

The kiwi increased to 93.68 Australian cents from 93.37 cents on Tuesday after Reserve Bank of Australia governor Glenn Stevens delivered his final public speech before his tenure ends next month, urging the federal government to offer more support to the central bank in maintaining economic growth.

The local currency was little changed at 73.02 yen from 72.97 yen on Tuesday and climbed to 4.7919 Chinese yuan from 4.7473 yuan. It gained to 55.18 British pence from 54.83 pence and increased to 64.66 euro cents from 64.35 cents.

New Zealand's two-year swap rate was unchanged at 1.94 per cent and 10-year swaps fell 5 basis points to 2.4 per cent.

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