NZD gains as economic growth reduces prospects of rate cut

Thursday 16 June 2016 05:20 PM

NZ dollar gains as economic growth reduces prospects of rate cut

By Jonathan Underhill

June 16 (BusinessDesk) - The New Zealand dollar gained after figures showed the economy grew faster than the Reserve Bank had forecast in the first quarter, giving it less reason to cut interest rates again.

The kiwi dollar traded at 70.78 US cents as at 5pm in Wellington from 70.39 cents immediately before the gross domestic product report and from 70.19 cents late yesterday. The trade-weighted index rose to 75.47 from 75.13 yesterday.

The local currency rose after figures showed the economy grew 0.7 percent in the first quarter, faster than the Reserve Bank's 0.6 percent prediction and the market's 0.5 percent forecast, although per-capita growth was more tepid and some indicators from 2015 were revised lower. The kiwi extended its gains after Australian employment data for May showed an unchanged jobless rate of 5.74 percent and a flat participation rate of 64.8 percent. The kiwi dropped against a resurgent yen after the Bank of Japan refrained from easing policy.

The GDP report "isn't sending signals that the New Zealand economy is crying out for more stimulus," said Philip Borkin, senior economist at ANZ Bank New Zealand. "At the margin it lowers the chances of an August cut."

The Reserve Bank's projections for the 90-day bank bill rate in this month's monetary policy statement imply one further cut, taking the official cash rate to 2 percent. The bank's next opportunity would be at the August MPS. Borkin said the consumers price index for the second quarter, due on July 18, will be more closely watched in terms of likely Reserve Bank moves, given the bank is projecting a pickup to 0.6 percent from the first quarter's tepid 0.2 percent increase.

The kiwi started the day on a stronger footing after the US Federal Reserve kept interest rates unchanged and signalled the pace of future increases will be slower than previously expected, in a statement that was more dovish than some economists had expected. It didn't move much as dairy prices were overall little changed in the latest GlobalDairyTrade auction even as whole milk powder fell.

The New Zealand dollar climbed to 95.75 Australian cents from 95.19 cents yesterday. It rose to 62.73 euro cents from 62.61 cents and gained to 49.93 British pence from 49.64 pence. The kiwi rose to 4.6544 yuan from 4.6276 yuan and fell to 73.70 yen from 74.46 yen.

New Zealand's two-year swap rate fell 1 basis points to 2.24 percent and 10-year swaps fell 5 basis points to 2.71 percent.

(BusinessDesk)

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