The New Zealand dollar weakened in anticipation Reserve Bank governor Graeme Wheeler will detail imminent plans to limit low equity house lending, which may reduce the need for interest rate hikes.
The kiwi fell to 80.64 US cents at 8am in Wellington from 81.18 cents at the 5pm market close yesterday. The trade-weighted index declined to 75.87 from 76.22 yesterday.
New Zealand's central bank, concerned about spiralling house prices causing financial instability, has consulted about the use of new tools which would force trading banks to restrict low equity mortgage lending. Governor Wheeler may detail plans to implement the loan-to-value ratio restrictions at a speech today where he is scheduled to explain the role of macro-prudential policy.
The speech "will be the major focus for New Zealand markets, containing details on the size and timing of pending speed limits on high LVR mortgage lending," Mark Smith, senior economist at ANZ New Zealand, said in a note. "We expect an imminent introduction of macro-prudential policy. This may weigh on NZD, as should it work it would reduce the requirement for interest rate increases."
Still, the central bank's plans have been well telegraphed and the impact should already be priced in, Smith said. The speech is at 2pm.