The New Zealand dollar tracked its Australian counterpart lower yesterday, but the market was quiet with interest firmly fixed on tomorrow's Reserve Bank speech.
Central bank Governor Don Brash will deliver a speech entitled "Can the Reserve Bank ignore the current increase in inflation?" early tomorrow morning, priming the public and the market for the bank's major Monetary Policy Statement (MPS) on August 16.
Deutsche Bank's Daniel Swasbrook said the local market would likely see associated volatility tomorrow morning, but he believed the speech would primarily explain in layman's terms what concerns the MPS would address.
Mr Swasbrook said Dr Brash would stress secondary effects of inflation in the light of the weak currency.
"They don't want to see wage pressures come through," Mr Swasbrook said. That would mean the Reserve Bank would have to pre-emptively raise its main inflation fighting tool, the official cash rate.
On Thursday, data with wage implications, the June quarter household labour-force survey, will be released.
BNZ economists said the speech would be critical.
"What is likely concerning the bank is that although the economy has cooled, inflation looks set to trend higher over coming quarters mainly as a result of higher oil prices and other one-offs."
Economists are divided on whether the central bank should move rates.
The currency market will watch all the more keenly for a sense of whether Dr Brash will leave or raise interest rates because the outlook for the two main influences on the kiwi - the aussie and greenback - will be affected by likely interest-rate rises in Australia and the United States in the next couple of months.
Mr Swasbrook said the kiwi softened yesterday on the back of the aussie, which in turn was sold against the yen.
The local dollar finished at 45.50USc (45.94c on Friday).
Looking ahead, the kiwi faces resistance around 45.85c and has support around 45.30c.
"Volumes were pretty light out there today, again there was not a lot of underlying interest in the kiwi.
"The market seems worried about the euro and the aussie. If you look at the euro and what's happening there it's just filtering down into the aussie and kiwi. That's what we're tracking off."
The Australian dollar closed here down a full US cent at 58.18USc (59.17c on Friday).
On the crosses, the kiwi was worth 78.19c (77.64c), 30.24 pence (30.41), 0.9629 marks (0.9636), and 0.4925 euros (0.4927).
The trade-weighted index was 51.44 (51.54) and with the yield on the 90-day bank bills steady on 6.83 per cent, the monetary conditions index eased to minus 545 (minus 527).
Following on from a slide in US treasuries, prices on Friday local bonds also fell.
- NZPA
Easier kiwi waits on Brash
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