NZ dollar treading water ahead of RBNZ review, Fonterra update

The New Zealand dollar was little changed ahead of the Reserve Bank's policy review tomorrow, which is expected to deliver another rate cut, and an update from Fonterra Cooperative Group on its forecast payout to farmers.

The kiwi traded at 66.28 US cents at 5pm in Wellington 66.32 cents at 8am, and 66.33 cents yesterday. The trade-weighted index traded at 72.10 from 72.15 yesterday.

Traders have increased their bets that RBNZ governor Graeme Wheeler will lower the 2.75 percent official cash rate in tomorrow's monetary policy statement, bringing them in line with economists who are almost unanimous in their forecast for looser policy. At the same time, Fonterra will update the market on its forecast payout to farmers, which may disappoint some investors who were picking a stronger recovery in the global dairy price. Dairy products are New Zealand's biggest commodity export, and the decline in global price sparked the RBNZ to start cutting rates earlier this year.

"We're waiting with bated breath for the RBNZ tomorrow. We believe they will cut, because if they don't cut tomorrow the next meeting with the full MPS is not until the 10th of March," said Michael Johnston, senior dealer at HiFX in Auckland. If the RBNZ cuts "we should get a reasonable downside move, but I don't think it will be massive."

The RBNZ's policy review comes a week before the US Federal Reserve assesses its own interest rates, and is widely expected to raise the federal funds rate from the zero to 0.25 percent band it's been in since late 2008.

New Zealand's two-year swap rate slipped one basis point to 2.7 percent at 5pm in Wellington, and 10-year swaps decreased one basis point to 2.7 percent.

HiFX's Johnston said even if the Fed does raise rates, traders have already positioned themselves for a stronger US dollar, and he doesn't expect the greenback to go much higher.

The kiwi was little changed at 91.72 Australian cents from 91.60 Australian cents ahead of employment data across the Tasman tomorrow.

It edged up to 4.2587 Chinese yuan from 4.2561 yuan yesterday after government figures showed Chinese consumer prices rose 1.5 percent in November from a month earlier, beating expectations.

The local currency dropped to 60.77 euro cents from 61.13 cents yesterday, and was little changed at 44.15 British pence from 44.09 pence. It declined to 81.40 yen from 81.67 yen yesterday.

(BusinessDesk)