NZ dollar holds ahead of OCR announcement

Photo / Dean Purcell

The New Zealand dollar was little changed against the US currency ahead of the Reserve Bank's review of monetary policy, which is expected to hold interest rates at a record low in the face of global economic turmoil.

The New Zealand dollar recently traded at 82.03 U.S. cents, up from 82 yesterday, and fell to 71.79 on the trade-weighted index of major trading partners' currencies from 71.99 previously.

The market is expecting central bank governor Alan Bollard to keep the official cash rate unchanged at 2.5 per cent today, with the downward spiral of the global economy forcing him to delay removal of the 50 basis points of earthquake stimulus implemented March.

Still, that's set against a back drop of an improving local economy which faces mounting inflationary pressures.

Traders are now pricing 48 basis points of increases over the next 12 months, according to the Overnight Index Swap curve, down from 111 basis points in July, just before a downgrade of the US credit rating by Standard & Poor's triggered the August volatility on global markets.

"The kiwi covered a bit of ground overnight but the upshot is we're where we were yesterday and waiting on the RBNZ," said Alex Sinton, a senior dealer at ANZ New Zealand.

"You have to suspect that the Reserve Bank will not change the cash rate, and the commentary will reflect the global picture and how it's deteriorated further."

The kiwi dollar drew some support from firmer global equities, which gained amid signs that European policy makers were closer to implementing a euro bond, a measure viewed by the market as a key tool to tackling the region's sovereign debt crisis.

On Wall Street, the Standard & poor's 500 Index rose 1.6 per cent to 1,191.89, and Europe's Stoxx 600 Index closed 1.5 per cent higher 224.17.

On the crosses, the kiwi dollar recently traded at 79.83 Australian cents, down from 80.06 cents yesterday, and fell to 62.86 Japanese yen from 63.03 yen previously.

It fell to 59.60 euro cents from 60.01 cents yesterday, and slipped to 51.99 pence from 52.07 pence previously.

The kiwi may trade between a range of 81.55 US cents and 82.50 cents, Sinton said, with the currency likely to take its direction from the Reserve Bank until European markets open.