Dollar falls as traders ponder prospects for RBNZ rate cut

The New Zealand dollar fell as traders mulled the likelihood that the Reserve Bank will cut interest rates in its final meeting of the year, putting on a different path to the US where the Federal Reserve is poised to start tightening policy.

The kiwi traded at 66.94 US cents at 5pm in Wellington, down from 67.36 cents at 8am and 67.44 cents on Friday in New York. The trade-weighted index increased to 72.46 from 72.26 last week.

Economists anticipate Reserve Bank governor Graeme Wheeler will the 2.75 percent official cash rate when he reviews policy on Thursday to alleviate the impact of falling global dairy prices, resilience in the currency on a trade-weighted basis, and a slowing economy. However, traders are more circumspect with market pricing indicating the decision will be a close call, as Wheeler may want to refrain from reducing borrowing costs for an already hot Auckland property market, and with the Fed's decision a week later likely to stoke demand for the greenback.

"The market pricing has move from about a 40 percent chance for a rate cut to 60 percent, so as we get nearer the event, it could make for an interesting week," said Mark Johnson, senior dealer foreign exchange at OMF in Wellington. "If they don't cut, you'd have to imagine there'd be a pretty keen short-covering rally, and if they do cut that'll be a reason for a test of the support levels."

OMF's Johnson said the kiwi has support at 66.40 US cents, and faces resistance at 68/68.40 cents.

A BusinessDesk survey of nine analysts predicts the kiwi may trade between 65 US cents and 69.25 cents this week. Five expect the kiwi to gain while four bet it will decline.

Government data showed wholesale trade rose 3.1 percent in the September quarter, as a jump in fruit exports spurred spending on grocery, liquor and tobacco.

New Zealand two-year swap rates slipped two basis points to 2.71 percent at 5pm in Wellington, and 10-year swaps were down one basis point to 3.6 percent.

The kiwi dropped to 61.64 euro cents from 61.93 cents on Friday in New York as investors continue to gauge the impact of the European Central Bank's expansion of stimulus last week. The kiwi declined to 44.34 British pence from 44.62 pence.

The local currency fell to 91.21 Australian cents from 91.83 cents on Friday in New York, and decreased to 4.2885 Chinese yuan from 4.3167 yuan. It dropped to 82.51 yen from 83.06 yen last week.

(BusinessDesk)