Dollar little changed as investors consider rate cut prospects

The New Zealand dollar was little changed as investors consider the possibility of a rate cut after employment figures yesterday showed slowing wage growth in the first three months of the year.

The kiwi traded at 75.03 US cents at 5pm in Wellington from 75.05 cents at 8am and 74.82 cents yesterday. The trade-weighted index advanced to 77.31 from 77.16 yesterday.

Traders are digesting employment figures yesterday that showed New Zealand wage growth slowed in in the first quarter and was unchanged on an annual basis, after the Reserve Bank month name-checked wage setting outcomes as a key component its watching in measuring inflationary pressures. The market is pricing in 36 basis points of cuts to the 3.5 percent official cash rate in the coming 12 months, according to the Overnight Index Swap curve.

"One thing that's building is the growing expectation of a rate cut - we've had a couple of banks already make a call for that this year in Deutsche Bank and ASB," said Michael Johnson, senior dealer foreign exchange at OMF in Wellington. "The kiwi's 74.50 US cents support level has help up so far over the last few days."

That comes as investors await US non-farm payrolls on Friday in Washington to gauge the strength of the world's biggest economy.

Traders are also eyeing the Reserve Bank of Australia's monetary policy statement tomorrow after the central bank cut the cash rate a quarter-point to 2 percent on Tuesday, while dropping any reference to future movements.

"The fact they didn't say they retained an easing bias implied that that's the end of it," Johnson said. "What a number of market players, ourselves included, are looking for is conformation that they in fact still have an easing bias."

The kiwi traded at 93.95 Australian cents at 5pm in Wellington from 93.87 cents yesterday.

Investors will also be awaiting the outcome of the UK general election, with polls indicating no clear winner and raising the prospect of a hung Parliament, which would put pressure on the pound.

The kiwi was little changed at 49.21 British pence at 5pm in Wellington from 49.18 pence yesterday, and fell to 66.10 euro cents from 66.60 cents. It edged down to 89.62 yen from 89.72 yen yesterday and increased to 4.6537 Chinese yuan from 4.6396 yuan.

New Zealand's two-year swap rate declined to 3.42 at 5pm in Wellington from 3.435 yesterday, and the 10-year swap rate advanced to 3.9775 from 3.948.

(BusinessDesk)