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NZ dollar rises after RB review announced

NZ dollar rises after Finance Minister says it won't be included in RBNZ overhaul

By Rebecca Howard

Nov. 7 (BusinessDesk) - The New Zealand dollar rose against the greenback after Finance Minister Grant Robertson indicated no plans to include the currency in the central bank's revised mandate and signalled no changes until March next year.

The kiwi traded at 69.32 US cents as at 5pm versus 69.25 cents as at 8:30am in Wellington from 68.92 cents late yesterday. The trade-weighted index gained to 73.52 from 73.22.

The kiwi lifted overnight after crude oil gained to a two-year high and found further support when Robertson and acting Reserve Bank of New Zealand governor Grant Spencer re-signed the existing Policy Targets Agreement and Robertson said a two-phase review is planned that will give the Reserve Bank a dual mandate of employment and inflation and will also introduce a committee-making decision model in the initial phase.

The second phase will be carried out in consultation with an independent advisory panel and Robertson said the dollar wouldn't be included.

"We believe that this comment was the reason for the positive market reaction to the news. The NZD rose 0.7 percent, presumably as markets were able to rule out actions specifically designed to lower the exchange rate," said Westpac Banking Corp chief economist Dominick Stephens.

Tim Kelleher, head of institutional foreign exchange sales at ASB Bank, agreed. "The market was a little bit short going into the talk about the PTA review today and then popped afterwards when the Kiwi wasn't mentioned," he said.

The kiwi got slight lift against the Australian dollar when the Reserve Bank of Australia left its benchmark interest rate steady at a policy meeting as inflation remains tepid. "I think it will be a slightly more exciting RBNZ on Thursday," said Kelleher, although he expects Spencer to "maintain the party line." It was trading at 90.14 Australian cents from 89.97 Australian cents late yesterday.

Economists are expecting the RBNZ to keep rates on hold at record low 1.75 percent and issue a cautious statement, however, there is some risk it could be more hawkish in its forecasts given the sharply weaker New Zealand dollar, emerging signs of inflation and the new government's fiscal policy, which will also generate inflation.

"We may also see some inflation from this oil shock," said Kelleher, referring to concern about instability in the Middle East after Saudi Crown Prince Mohammed bin Salman extended a crackdown on corruption that has seen members of the royal family, ministers and business leaders detained - a purge seen by some as a move to cement his power over the oil-rich kingdom.

Kelleher said markets will also be watching for the overnight GlobalDairyTrade auction which is expected to be weak, with the futures pointing to a 2 percent drop.

The kiwi rose to 4.5915 yuan from 4.5694 yuan and traded at 52.60 British pence from 52.69 pence and gained to 59.70 euro cents from 59.32 cents. It rose to 78.97 yen from 78.79 yen.

New Zealand's two-year swap rate rose 3 basis point to 2.19 percent and 10-year swaps rose 4 basis point to 3.13 percent.


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