NZ dollar hits 15-month high after OCR cut

BusinessDesk

11 Aug, 2016 05:00 AM2 mins to read

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The New Zealand dollar rose to a 15-month high after the Reserve Bank's quarter-point rate cut disappointed some traders who had been picking an even bigger reduction to the official cash rate.

The kiwi rose as high as US73.41c after the policy decision was announced, and was trading at US72.60c at 5pm from US72.02c immediately before the release and US72.13c yesterday.

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The trade-weighted index climbed to 76.83 from 76.28 yesterday, still above the 76 September quarter average projected in the Reserve Bank's latest forecast.

Traders had priced in an outside chance governor Graeme Wheeler would cut the OCR 50 basis points today and were disappointed when he only lowered it by 25 points.

Wheeler indicated more easing was likely and said the strength of the currency was making it difficult to meet his 1-to-3 per cent inflation target band.

If the kiwi doesn't depreciate as the Reserve Bank assumes, an alternative scenario indicated the bank could cut the benchmark rate to as low as 1 per cent.

"The market was looking for 50 points more than we probably thought," said Mitchell McIntyre, senior corporate FX dealer at NZForex in Auckland.

"Most banks are calling for another one or two cuts out of New Zealand over the course of 2016, but I don't think it's going to do too much to drive the currency lower unless they do come out and do 50 in one hit."

NZForex's McIntyre said he expects the kiwi to trade between US69c and US72.5c until the Federal Reserve gives clearer guidance on when it will resume raising interest rates.

New Zealand's two-year swap rate rose 2 basis points to 1.96 per cent and 10-year swaps fell 2 basis points to 2.38 per cent.

The local currency rose to 94.30 Australian cents from A93.68c yesterday and gained to 4.8209 Chinese yuan from 4.7919 yuan.