Dollar drops to three-week low as traders eye RBNZ

The New Zealand dollar fell to a new three-week low as traders questioned whether the Reserve Bank's steps to lean on lending to speculative property investors will warrant a harder stance when the bank reviews interest rates on Thursday.

The kiwi fell as low as 73.24 US cents, trading at 73.31 cents at 5pm in Wellington from 73.60 cents on Friday in New York. the trade-weighted index dropped to 77.02 from 77.92 last week.

The local currency dropped 20 basis points after Prime Minister John Key said the Reserve Bank was looking at expanding its macro-prudential tools which would let interest rates stay lower for longer. The central bank last week said it's looking at ways to tighten rules around lending on residential rental properties to better reflect the risks, which some traders see as giving governor Graeme Wheeler more room to leave rates unchanged, or cut if need be.

"The risk is having announced them last week with such a short timeframe, he can lean on things more on Thursday," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland.

The kiwi and Australian dollars were already under pressure in the Asian trading session after better-than-expected US jobs data stoked speculation the Federal Reserve will raise interest rates earlier than anticipated.

"Asian currencies are all under the pump on the back of the Fed rumour - emerging markets are the hardest hit, and it's putting a bit of pressure on the kiwi and Aussie as well, especially ahead of Thursday," Kelleher said.

A BusinessDesk survey of eight currency strategists, traders and analysts today predicts the kiwi may trade between 72 US cents and 75.50 cents this week. Six expect the local currency to decline while one picks it to increase and one says it will probably remain unchanged.

Government figures showed New Zealand's manufacturing volumes grew 0.9 percent in the December quarter, though falling dairy prices eroded the value of sales, which fell 0.7 percent in the quarter.

The kiwi dollar slipped to 88.76 yen at 5pm in Wellington from 88.89 yen on Friday in New York, and declined to 4.5926 yuan from 4.60.70 yuan. It was little changed at 95.30 Australian cents from 95.24 cents last week, and fell to 67.63 euro cents from 67.83 cents. It decreased to 48.67 British pence from 48.92 pence on Friday in New York.

New Zealand's two-year swap rate rose to 3.6 at 5pm in Wellington from 3.535 last week, while the 10-year swap rate advanced to 3.905 from 3.825 on Friday.

(BusinessDesk)