Dollar eases on interest rate cut speculation

  • 15/07/2016

The New Zealand dollar has been sold off as the markets speculate on the increased chances of an interest rate cut next month.

The kiwi was trading at 72.09 US cents at 6am, down almost one percent from yesterday morning.

It was almost one and a half percent lower against the Australian dollar, sitting at 94.37 Australian cents.

The kiwi had lost over two percent against the pound, trading at 54.10 pence.

Traders are now pricing in a 60 percent chance of an interest rate cut next month, compared to a forty percent chance a week ago.

That was prompted by an announcement from the Reserve Bank (RBNZ) yesterday that next Thursday it will release a brief update on its economic assessment, due to the longer than usual gap between Monetary Policy Statements.

That was enough for some traders to think the RBNZ might signal next week that it is more likely to cut the OCR when it releases its next Monetary Policy Statement on August 11.

The already strong New Zealand dollar made further gains in the past week following a speech by the Deputy Governor of the Reserve Bank Grant Spencer. Some took the speech as a sign the Bank was wary of a rate cut because of the impact it could have on house prices.

Some in the markets now think the RBNZ will take the opportunity next Thursday to say that it thinks the dollar has risen too far, too fast. If the bank says that a high dollar could dampen inflation that could be seen as a signal that a rate cut is on the way.

There are other factors driving down the value of the New Zealand dollar.

The Australian dollar has risen since yesterday's Australian employment figures showed there had been a big increase in full-time jobs last month.            

The Pound rallied against most currencies after the Bank of England kept rates on hold. Some traders had anticipated there would be a rate cut.

The New Zealand Trade Weighted Index is sitting at 76.9, its lowest level for the week. But that is still slightly above where it was before the RBNZ speech.


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