NZ dollar falls as opinion on RBNZ rate cut Thursday firms

The kiwi dropped to 66.34 US cents at 5pm in Wellington, from 66.94 cents late yesterday. Photo / iStock

The New Zealand dollar fell on growing speculation the Reserve Bank will cut interest rates at its review on Thursday, just a week before the US Federal Reserve meets and is expected to raise US interest rates for the first time in nine years.

The kiwi dropped to 66.34 US cents at 5pm in Wellington, from 66.94 cents late yesterday. The trade-weighted index fell to 72.16 from 72.46 yesterday.

21 of 24 economists polled by Reuters expect the Reserve Bank will cut the official cash rate by a quarter point to 2.5 percent with its monetary policy statement on Thursday.

By contrast, traders are more evenly split, meaning there is a risk of currency volatility whether the central bank cuts or holds the OCR at 2.75 percent. If it does keep the rate unchanged, any gain in the kiwi may be limited by the prospects of a Fed hike next week, traders said.

"This market's pricing in a greater chance of a rate cut by the RBNZ," said Nick Tvedt, a senior dealer at NZ Forex. The kiwi reached a month-high last week and since then "there's been a bit of profit taking coming off those fairly elevated levels."

NZ Forex expects the central bank "could sit on its hands this week and do nothing for another month," although any gain in the kiwi would be capped by the prospects of a Fed rate hike, he said.

The kiwi didn't move much after figures showed the government's operating deficit was smaller than predicted in the first four months of the 2016 financial year, as a number of one-off corporate tax payments swelled the Crown's coffers.

The operating balance before gains and losses (obegal) was a deficit of $478 million in the four months ended Oct. 30, smaller than the $1.17 billion shortfall predicted in the May budget. It stayed low after China, New Zealand's largest trading partner, reported that exports fell in November, the fifth month in a row.

The New Zealand dollar rose to 91.61 Australian cents from 91.27 cents yesterday, slipped to 61.12 euro cents from 61.63 cents, and declined to 44.08 British pence from 44.33 pence. It fell to 81.67 yen from 82.52 yen and dropped to 4.2569 yuan from 4.2894 yuan.

The two-year swap rate rose 2 basis points to 2.71 percent and 10-year swaps rose 2 basis points to 3.59 percent.