Dollar advances ahead of Reserve Bank decision

The New Zealand dollar has fallen 15% against the greenback so far this year, reflecting weaker economic growth, falling dairy prices, lower interest rates and a pick up in the US. Photo / NZME.

The New Zealand dollar advanced ahead of the Reserve Bank meeting today, on optimism about global growth as China's government signalled it will support its flagging economy.

The kiwi climbed to 63.89 US cents at 8am in Wellington, from 63.72 cents at 5pm yesterday. The trade-weighted index rose to 69.60 from 69.30 yesterday.

Investors are favouring higher risk assets such as equities and currencies like the kiwi as they gain confidence about the outlook for Chinese growth.

The Finance Ministry in China said it would strengthen fiscal policy, boost infrastructure spending and speed up tax reform, helping boost Chinese equities for a second day. In New Zealand, the Reserve Bank is expected today to reduce its benchmark interest rate by a quarter point to 2.75 per cent, although some expect governor Graeme Wheeler to be more sanguine about the outlook.

"The case for a cut is pretty compelling," ANZ Bank New Zealand senior economist Sharon Zollner and senior FX strategist Sam Tuck said in a note. "ANZ, like everyone else, is anticipating a 25 basis points cut to 2.75 percent, but suspects the market may be disappointed by a less dovish tone than expected when it comes to future moves."

The Reserve Bank will be weighing up an improvement in dairy prices, a sharply lower currency, high migration and a buoyant Auckland housing market against slower economic growth, higher unemployment, weak business confidence, low inflation and slowing growth in the country's major trading partners, ANZ said.

Governor Wheeler will front a press conference at 9am and appear before parliament's finance and expenditure select committee at 1pm.

Other data scheduled for release in New Zealand today includes card spending and house sales for August.

The kiwi will probably trade between 62.80 US cents and 64.80 cents today, ANZ said.
The New Zealand dollar rose to 91.04 Australian cents from 90.38 cents yesterday ahead of Australian August employment data today.

The kiwi gained to 4.0741 yuan from 4.0609 yuan yesterday. China is scheduled to release inflation and producer price data for August today.

The local currency climbed to 76.97 yen from 76.60 yen yesterday, edged up to 41.59 British pence from 41.41 pence, and was little changed at 57.01 euro cents from 57.06 cents.

The Bank of England is expected to keep interest rates on hold at its meeting tonight, with traders looking for clues on the outlook for a hike.

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