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NZD falls over potential RBNZ rate cut

NZ Newswire logoNZ Newswire 3/08/2016 Jonathan Underhill

The kiwi fell to 72.72 yen from 73.58 yen with Japan's currency the biggest beneficiary of US dollar weakness. © Reuters The kiwi fell to 72.72 yen from 73.58 yen with Japan's currency the biggest beneficiary of US dollar weakness. The New Zealand dollar fell against the greenback and the Australian dollar as traders started to focus on the Reserve Bank's policy review on Aug. 11 and whether it will need to do more than one 25 basis point cut to stir inflation in the face of global deflationary pressures.

The kiwi dollar traded at 72 US cents as at 5pm in Wellington from a three-week high of 72.55 cents overnight. The local currency fell to 94.76 Australian cents from 95.52 cents yesterday.

Traders are putting 96 per cent odds on RBNZ governor Graeme Wheeler cutting the official cash rate a quarter point to 2 per cent next week and expect he will signal the bank is still in easing mode after its latest survey showed expectations for low inflation are becoming entrenched.

A decline in the price of crude oil in recent weeks, to a four-month low, means fuel prices will again be among deflationary forces in the local economy, while a trade-weighted index well above the central bank's assumed path means there's little inflation in imported prices.

"The market is well aware the Reserve Bank is going to be cutting rates on Aug. 11 and expects it to signal further easing, said Michael Johnston, senior trader at HiFX.

Making a bigger cut to the OCR, or "front-loading" the easing "would see the kiwi come off quite markedly" and Wheeler "could still signal an easing bias as well."

Annual inflation was 0.4 per cent in the second quarter, marking the seventh straight quarter that it had undershot the Reserve Bank's 1 per cent-to-3 per cent target range. Labour cost data underlined how little pressure there is on prices, with private sector ordinary time wages up 0.4 per cent in the second quarter, missing economist expectations for a 0.5 per cent increase.

The kiwi hit its three-week high around the time the results of the latest GlobalDairyTrade auction were released, showing a 6.6 per cent gain in the GDT price index to US$2,336 and a 9.9 per cent gain in whole milk powder to US$2,265 a tonne.

The trade-weighted index slipped to 76.32 from 76.46. The kiwi fell to 72.72 yen from 73.58 yen with Japan's currency the biggest beneficiary of US dollar weakness. The local currency slipped to 64.18 euro cents from 64.25 cents yesterday and declined to 54.04 British pence from 54.44 pence. It fell to 4.7751 Chinese yuan from 4.7893 yuan yesterday.

New Zealand's two-year swap rate fell 1 basis point to 2.01 per cent and the 10-year swaps rose 4 basis points to 2.46 per cent.

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