NZ dollar gains as Reserve Bank rate cut case weakens

The New Zealand dollar rose after the Bank of Japan's decision not to expand its stimulus measures drove up the yen against the greenback and left traders who were long on US dollars looking for other currencies to transact with.

The kiwi rose to 69.54USc cents as at 8am in Wellington, from 69.33USc late yesterday. It surged after 9am yesterday when the Reserve Bank kept the official cash rate unchanged and made what some traders read as a less emphatic statement about the need to cut interest rates. The local currency fell to ¥75.21, from ¥75.54 late yesterday and down from ¥77.09 before the Bank of Japan statement.

Faced with anaemic economic growth and a battle against deflation, Japan's central bank had been widely expected to add to the extraordinary monetary easing in place since 2014 in yesterday's announcement. Instead, it stood pat, sending the US dollar to its biggest slump against the yen in five years. Adding to negative sentiment for the greenback, figures showed US economic growth slowed to a 0.5% annual pace in the first quarter and consumer spending also slowed.

"The markets were receiving a lot of US dollars from the dollar-yen selloff and had to distribute that somewhere else," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand. That added to the lift the kiwi had against the greenback after the Reserve Bank statement indicated "its easing bias was a little less strong than at the previous meeting."

By contrast, the Federal Open Market Committee's statement this week didn't give the market a sense it was in a hurry to raise interest rates. While it dropped a reference to the global financial and economic risks, it substituted in that it was "closely monitoring" global developments, Mr Tuck said.

The trade-weighted index rose to 73.25 from 73.14 yesterday and up from 72.46 before the RBNZ statement. The kiwi gained to 91.17Ac from 91.08Ac and was little changed at 47.60 British pence. It edged up to 61.25 euro cents from 61.16 cents and rose to 4.5049 yuan from 4.4628 yuan.

(BusinessDesk)