Rates cut speculation drives kiwi down

  • 08/12/2015
Rates cut speculation drives kiwi down

By Jonathan Underhill

The New Zealand dollar fell on growing speculation the Reserve Bank will cut interest rates at its review on Thursday, just a week before the US Federal Reserve meets and is expected to raise US interest rates for the first time in nine years.

The kiwi dropped to 66.34 US cents at 5pm in Wellington, from 66.94 cents late today. The trade-weighted index fell to 72.16 from 72.46.

Twenty-one of 24 economists polled by Reuters expect the Reserve Bank will cut the official cash rate by a quarter point to 2.5 percent with its monetary policy statement on Thursday.

By contrast, traders are more evenly split, meaning there is a risk of currency volatility whether the central bank cuts or holds the OCR at 2.75 percent. If it does keep the rate unchanged, any gain in the kiwi may be limited by the prospects of a Fed hike next week, traders said.

The kiwi didn't move much after figures showed the Government's operating deficit was smaller than predicted in the first four months of the 2016 financial year, as a number of one-off corporate tax payments swelled the Crown's coffers.

The operating balance before gains and losses was a deficit of $478 million in the four months ended Oct. 30, smaller than the $1.17 billion shortfall predicted in the May budget.

The New Zealand dollar rose to 91.61 Australian cents from 91.27 cents today, slipped to 61.12 euro cents from 61.63 cents, and declined to 44.08 British pence from 44.33 pence. It fell to 81.67 yen from 82.52 yen and dropped to 4.2569 yuan from 4.2894 yuan.

The two-year swap rate rose 2 basis points to 2.71 percent and 10-year swaps rose 2 basis points to 3.59 percent.