NZ dollar little changed after business confidence dips

File photo / NZ Herald

The New Zealand dollar was little changed in local trading after business confidence dipped from a 20-year high, while remaining relatively upbeat.

The kiwi traded at 87.63 US cents at 5pm in Wellington, from 87.58 cents at 8am and was up from 87.19 cents yesterday. The trade-weighted index rose to 81.51 from 81.21 yesterday.

The New Zealand Institute of Economic Research's Quarterly Survey of Business Opinion showed a net 33 percent of businesses were optimistic in the June quarter, seasonally adjusted, from a net 51 percent in the first quarter, prompting a short-lived dip in the kiwi dollar. The survey comes as the Reserve Bank is expected to raise the benchmark interest rate this month, following three increases this year.

"The kiwi continues to defy gravity against the US dollar but we had a blip on the radar on the downside after the business opinion survey," said Stuart Ive, senior trader at OMF.

"We saw about a 20 point drop after the release of that data coming in weaker but the key underlying thing when you read through the report, it ends up on the bottom line saying with inflation expectations pinned at 2.5 percent in the medium term it's unlikely to detract the RBNZ from its hiking policy."

Looking ahead, traders are waiting for minutes from the US Federal Reserve's June meeting on Wednesday in Washington, as some analysts speculate that last week's employment data will push chair Janet Yellen to begin hiking interest rates sooner than expected.

New Zealand is the first developed central bank to embark on a tightening cycle, after holding the official cash rate at a record low 2.5 percent since March 2011, a move similar to most of the world's major central banks seeking to stimulate economic growth after the global financial crisis froze credit markets. The relatively high yield has put upward pressure on the local currency.

"We continue to wait to see the US yields increase but again the markets are still undecided as to when the Federal Reserve are going to change their policies," Ive said. "It's a long way off at the end of the day, and New Zealand is still hiking rates and that is really all the market can focus on at this moment in time."

The kiwi rose to 93.36 Australian cents from 93.14 cents at 5pm in Wellington yesterday. New Zealand's closest neighbour and second biggest trading partner releases employment data on Thursday. Australian unemployment rate has been static at 5.8 percent since March, but if data shows significant improvement it is likely to dampen demand for the kiwi and put downwards pressure on the TWI owing to the weight of the cross rate in the index, Ive said.

The local currency rose to 89.21 yen from 89.01 yen yesterday, and advanced to 51.16 British pence from 50.85 pence. The New Zealand dollar climbed to 64.41 euro cents from 64.17 cents yesterday.