Kiwi dollar falls before RBNZ statement

Kiwi falls before RBNZ statement; Bush-era tax cuts support greenback

By Jason Krupp

Dec. 9 (BusinessDesk) - The New Zealand dollar fell ahead of the Reserve Bank’s review of monetary policy as speculation the U.S. will extend Bush-era tax cuts for another two years helped lift the greenback.

The proposed extension for another two years looked more certain after Democrats in the U.S. Senate signaled they would back the deal, having previously spoken against it. If passed, the move would provide a major stimulus the world's biggest economy, with the impact already being felt in the bond market. U.S. 10-year Treasury yields approached 3.3% in the session, their highest level since June.

"The stimulus news and the extent of it was a surprise," said Imre Speizer, markets strategist at Westpac Banking Corp. "This is a significant stimulus for the U.S. economy over the next couple of years, and therefore there is less need for Fed money."

The kiwi fell to 74.87 U.S. cents from 75.20 cents yesterday, and fell to 67.78 on the trade-weighted index of major trading partners’ currencies from 68.18. The currency fell to 76.45 Australian cents from 76.88 cents, and declined to 62.89 yen from 63.11 yen. It fell to 56.47 euro cents from 56.89 cents yesterday, and dropped to 47.36 pence from 47.91 pence.

That comes ahead of today's Reserve Bank of New Zealand statement where Governor Alan Bollard is widely expected to keep the official cash rate on hold at 3%. The focus will instead be on when the bank is likely to raise rates next year, with deterioration in the short-term growth outlook likely to push future hikes beyond March.

"With a neutral outcome from the Reserve Bank we could see it bounce to the 76 cents area," Speizer said. "A dovish one could make it test 74 cents, which is an important level and suggests a multi-week decline."

(BusinessDesk)

© Scoop Media