NZ dollar holds gains following OCR cut

The kiwi touched a high of 66.73 US cents over the weekend, and was trading at 65.88 cents at 8am in Wellington, from 65.82 cents at the New York close and 65.87 cents at 5pm on Friday. Photo: NZ Herald.

The New Zealand dollar held onto some of its gain after the Reserve Bank yesterday cut the benchmark interest rate by a quarter point and toned down its call for more falls in the currency, disappointing some who had bet on a larger cut.

The kiwi was trading at 66.10 US cents at 8am in Wellington, from 66.29 cents at 5pm yesterday and 65.65 cents ahead of the Reserve Bank's interest rate decision released at 9am yesterday.

The trade-weighted index was at 70.36 at 8am from 70.50 at 5pm yesterday and 69.98 before the Reserve Bank's decision.

Reserve Bank governor Graeme Wheeler cut the official cash rate to 3 per cent on the prospect of slowing growth and low inflation, and said more reductions were likely.

Some traders had bet he would cut the rate to 2.75 per cent.

Wheeler removed his reference to the New Zealand dollar being unjustifiably and unsustainably high - key criteria for the bank to intervene in foreign exchange markets - but said further depreciation in the kiwi was needed to support the country's exporters.

"The New Zealand dollar held onto its post RBNZ gains," Kathy Lien, managing director of FX strategy for BK Asset Management in New York said in a note.

"Ultimately we expect NZD/USD to trade lower because the central bank could still lower rates."

Traders are pricing in a 94 per cent chance the central bank will reduce the benchmark again at its next meeting in September, according to the overnight interest swap curve.

In New Zealand today, trade data for June is published at 10:45am. The country's trade surplus is expected to shrink to $100 million in June, from $350 million in May reflecting weaker dairy exports, according to a Reuters poll of economists.

The Reserve Bank is scheduled to release data on high debt mortgage lending at 3pm.

Also this afternoon, a gauge of Chinese manufacturing activity for July will be watched for signs of how Asia's largest economy is tracking.

The Caixin performance of manufacturing index was formerly known as the HSBC PMI.

The New Zealand dollar was little changed at 89.82 Australian cents from 89.85 cents yesterday, slipped to 81.83 yen from 82.20 yen, and fell to 60.11 euro cents from 60.58 cents.

The local currency rose to 42.58 British pence from 42.42 pence yesterday after UK retail sales for June missed expectations.