RESEND: NZ dollar drops 1 US cent on prospect of rate cuts

RESEND: NZ dollar drops 1 US cent as traders bet on currency's decline after RBNZ rate cut

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By Tina Morrison

Sept. 10 (BusinessDesk) - The New Zealand dollar dropped 1 US cent after traders reinstated so-called 'short' positions, betting on the currency's decline after the Reserve Bank cut the official cash rate and signalled at least one further reduction in borrowing costs.

The kiwi fell as low as 62.72 US cents from 63.85 cents immediately before the Reserve Bank's 9am monetary policy statement, and was recently trading at 62.92 cents.

Speculative traders had pushed up the currency ahead of today's MPS in anticipation that Reserve Bank governor Graeme Wheeler's tone may be more upbeat on the outlook, given dairy prices have started to pick up, and other areas of the economy remain strong, aided by a decline in the local currency. However Wheeler's confirmation today that further interest rate declines are in the wind prompted those traders to reinstate their short positions, analysts said.

"The kiwi/US moved a lot more than expected," said Imre Speizer, senior market strategist at Westpac Banking Corp. "It's because we had a fairly strong rally over the last two days. That rally was probably people getting out of their speculative short positions ahead of the Reserve Bank. Now the Reserve Bank has confirmed that further easing is coming, I think speculators will want to reinstate those positions."

"It has not fallen a cent because the market is shocked and surprised - it has just fallen simply because of positioning, which had been rebalanced and now has to be rebalanced again."

Westpac's Speizer expects the kiwi to be trading at about 63 US cents by the end of the day.

(BusinessDesk)

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