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NZ dollar heads for 2.1% weekly drop on RBNZ's neutral bias

NZ dollar heads for 2.1% weekly decline after RBNZ shifts bias to neutral

By Tina Morrison

Jan. 30 (BusinessDesk) - The New Zealand dollar is headed for a 2.1 percent weekly decline against the US dollar, having hit a four-year low after the Reserve Bank yesterday removed its bias for higher interest rates, saying the benchmark rate could go up or down.

The kiwi was at 72.80 US cents at 5pm in Wellington, having touched a low of 72.28 cents this morning, and from 74.36 cents at 8am on Monday. The trade-weighted index declined to 75.54 from 76.92 at the start of the week.

The New Zealand dollar tumbled this week following Reserve Bank governor Graeme Wheeler's statement yesterday morning that while he wasn't changing the 3.5 percent benchmark rate, the future direction could be up or down as he monitored economic data. Traders began to price in the chance of an interest rate cut, sending the kiwi sharply lower.

"The RBNZ was a bit more dovish than the market expected," said Martin Rudings, senior dealer, foreign exchange at OMF. "Now the market is pricing in the chance of rate cuts in New Zealand and that's caused the kiwi dollar to come off because previous to that we were looking at the next move being a rate hike. That turnaround in thinking means a readjustment in the currency has to take place."

OMF's Rudings said while the currency may consolidate following the steep decline, he expects it to fall to the mid-60 US cent level during the year.

Fonterra Cooperative Group's announcement yesterday that it expected lower milk volumes due to dry weather also weighed on the market because of concerns about the potential flow on affect to GDP, Rudings said.

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Next week, all eyes will be on the Reserve Bank of Australia's meeting on Tuesday to see if they cut their benchmark rate or potentially wait until their March meeting.

The New Zealand dollar slid to 93.48 Australian cents from 94.12 cents at the start of the week, weakened to 64.27 euro cents from 66.47 cents, slipped to 48.30 British pence from 49.58 pence and dropped to 85.91 yen from 87.45 yen.

(BusinessDesk)

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