NZ dollar treading water until OCR review

Will Alan Bollard cut the Official Cash Rate next week? Photo / Mark Mitchell

The New Zealand dollar will probably hold around 75 US cents until next Thursday as traders wait for the Reserve Bank to say whether it will cut the official cash rate in response to last week's fatal earthquake in Christchurch.

Some economists are calling for central bank Governor Alan Bollard to cut the OCR 50 basis points at next week's meeting in response to a weakening economic outlook, exacerbated by the 6.3 magnitude earthquake, which killed at least 155 people and caused as much as $15 billion worth of damage.

European and American stock markets fell amid fears the rising tension in the Middle East, which has spread to Iran, will impact on oil supply.

The kiwi was little changed in Northern Hemisphere trading overnight, with record prices for milk powder on Fonterra's online trading platform offsetting the negative news.

"We've got enough information on the extent of damage to Canterbury - the question in currency markets is what's the Reserve Bank going to do? Move by 25 points or 50?" said Khoon Goh, head of market economics and strategy at ANZ New Zealand.

"If it wasn't for commodity prices, the New Zealand dollar would have dropped away a long time ago."

The kiwi was little changed at 74.93 US cents from 75.07 cents yesterday, and slipped to 66.20 on the trade-weighted index of major trading partners' currencies from 66.28.

It fell to 61.33 yen from 61.63 yen yesterday, and rose to 73.84 Australian cents from 73.76 cents.

It was little changed at 54.27 euro cents from 54.30 cents yesterday, and recently traded at 46.01 pence from 46.10 pence. Goh said the currency may trade between 74.90 US cents and 75.40 cents, and will continue to be bought on dips until the central bank's monetary policy statement next Thursday.

The Reserve Bank of Australia held the overnight target cash rate at 4.75 per cent yesterday, as expected, and investors will be looking to see how Australia's economy performed in the fourth quarter.

The economy probably grew 0.6 per cent in the quarter for an annual pace of 2.7 per cent, according to a Reuters survey. In testimony to the US Senate, Federal Reserve chairman Ben Bernanke reiterated his support for quantitative easing until the middle of the year, and will push to keep interest rates near-zero for the foreseeable future.

Bernanke acknowledged the improvement in the world's largest economy, though he said job growth was still lagging.