NZ dollar falls from 12-month high as rate cut bets re-emerge, greenback gains

The New Zealand dollar fell from a 12-month high as more traders bet there's still a chance of an interest rate cut by the Reserve Bank in August and the greenback strengthened.

The kiwi fell to 70.85 US cents as at 5pm in Wellington, from 71.37 cents late yesterday, having reached as high as 71.46 cents overnight on speculation the Reserve Bank may be done cutting interest rates for now. The trade-weighted index fell to 75.56 from 75.74 yesterday.

The New Zealand dollar is still heading for a 2 percent gain over the week, having been given a leg up from weak US payrolls data last Friday and then a more substantial push higher yesterday, when Reserve Bank governor Graeme Wheeler kept the official cash rate at 2.25 percent. Wheeler said he didn't want to inflame the housing market and had little influence over the kiwi. As a result, the market yesterday reduced the chance of a rate cut in August but today bets were again rising on concern the move was overdone.This afternoon there was a 50 percent chance of a cut in August built into the overnight interest swap market, up from 44 percent at the start of the day.

"Interest rates have just retraced a little from yesterday," said Martin Rudings, a senior foreign exchange dealer at OMF. "The higher the currency goes, the more likely farmers are to be squeezed and it is deflationary, so the Reserve Bank is then more likely to have to lower rates."

A stronger US dollar, which rose as the euro weakened amid concerns about Britain's referendum on whether to exit the European Union, had also "put some doubts in people's minds" about the New Zealand dollar's rally against the greenback, Rudings said.

Also weighing on the kiwi today, government figures showed New Zealanders cut their retail spending on credit and debit cards for the first time in 13 months in May. Retail spending fell 0.3 percent, seasonally adjusted, in May, the first decline since April 2015.

The New Zealand dollar was little changed at 95.59 Australian cents from 95.57 cents yesterday. It fell to 75.82 yen from 76.06 yen and fell to 4.6464 yuan from 4.6812 yuan. The currency rose to 62.71 euro cents from 62.57 cents and weakened to 49.01 British pence from 49.21 pence.

The two-year swap rate fell 1 basis point to 2.30 percent and the 10-year swaps fell 1 basis point to 2.83 percent.

(BusinessDesk)