NZ dollar falls as Reserve Bank lays groundwork for November rate cut

The New Zealand dollar fell as the Reserve Bank lay the groundwork for lower interest rates later this year as inflation continues to be restrained by the strength of the currency.

The kiwi slipped to 73.03USc at 8am in Wellington from 73.29USc yesterday. The trade-weighted index declined to 77.50 from 77.78.

Reserve Bank governor Graeme Wheeler kept the official cash rate at 2% yesterday, saying more easing was on the cards to get inflation back within the target band of 1-3%. His move followed the Federal Reserve, which also put off making a decision on whether to raise interest rates, a key influence on how deeply Mr Wheeler will have to cut. Meanwhile, The Reserve Bank of Australia's Philip Lowe told politicians he was comfortable with where rates were at in his first public outing as governor.

"The statement left us comfortable with our core view for a Reserve Bank rate cut in November, with a further cut in February being a line-ball call," Bank of New Zealand currency strategist Kimberly Martin said in a note. The weaker TWI "will be welcomed by the Reserve Bank that yesterday reiterated that 'a decline in the exchange rate is needed'."

The greenback was generally weaker with the US Dollar Index falling 0.3%, with the market taking its cue from yesterday's Federal Open Market Committee meeting. ANZ Bank New Zealand economist Philp Borkin said global events will keep driving the kiwi in coming weeks and may try to push the currency lower.

The kiwi fell to 95.60Ac from 95.93Ac  after Mr Lowe's testimony at Parliament yesterday and declined to 4.8653 Chinese yuan from 4.8880 yuan. It dropped to 65.19 euro cents from 65.42 cents yesterday and fell to 55.86 British pence from 56.17 pence.

The local currency increased to ¥73.64 from ¥73.46 as investors continue to digest the Bank of Japan's amended monetary policy, where it's scrapped a monetary target and will focus its bond-buying programme on longer-term rates.

(BusinessDesk)

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