The New Zealand dollar, which has advanced 3.4 per cent so far this year, is unchanged ahead of the Reserve Bank meeting today where governor Graeme Wheeler is widely expected to increase interest rates by a quarter point.
The kiwi was unchanged at 84.67 US cents at 8am in Wellington, from 5pm yesterday and 81.91 cents at the start of the year. The trade-weighted index edged lower to 79.31 from 79.49 yesterday.
Governor Wheeler has signalled the official cash rate will have to rise from its record-low 2.5 per cent to head off the threat of future inflation, and investors will today be looking for further detail on the extent and pace of any future hikes. Traders have priced in a 100 per cent chance of a rate hike when the decision is released at 9am today, according to the Overnight Index Swap curve. Higher interest rates boost the appeal of local assets, increasing demand for the nation's currency.
"Today the RBNZ is almost unanimously expected to raise the OCR from its historic low of 2.5 per cent," Kymberly Martin, markets strategist at Bank of New Zealand, said in a note. "Any deviation from this expectation (unlikely in our view) would prompt a large response in the currency. Still, even delivery on expectation may prompt the obligatory knee-jerk tick higher in the NZD/USD."
BNZ's Martin said she will be looking for potential upgrades to the central bank's expectations for growth, inflation and the 90-day bank bill rate.
