The New Zealand dollar fell against the greenback ahead of the Reserve Bank's official cash rate announcement this morning, with the protracted deadlock in Washington on the US debt ceiling weighing on investors' appetite for higher yielding, or riskier, assets.
The Reserve Bank is expected to keep the OCR on hold at 2.5 per cent today, according to a poll of 18 analysts compiled by Reuters, with the majority expecting Governor Alan Bollard to keep the 50-basis point earthquake stimulus in place until December.
Still, the market will be focusing on the wording of today's statement for signs that the bank may start tightening policy sooner, after annual inflation hit a 21-year high of 5.3 per cent in the June quarter, and first-quarter growth figures came in at 0.8 per cent, double expectations.
"The Reserve Bank will have a delicate balancing act today in signalling the removal of the insurance cuts soon without sending the New Zealand dollar into another post-float high," said Alex Sinton, a senior dealer at ANZ New Zealand. "People are anticipating a hawkish announcement, but perhaps not as hawkish as some are expecting, with the bank needing to move the cash rate but that's unlikely to be today."
Demand for growth-linked currencies, such as the New Zealand dollar, came under pressure, with global markets falling as Democrats and Republicans remain deadlocked on an agreement to lift the US$14.29 trillion debt ceiling.
