Bank analysts waiting for the word from Bollard

By ELLEN READ

The dollar is hovering around 70USc as it awaits the Reserve Bank interest rate announcement today.

A 25-basis point rise, bringing the official cash rate to 6.5 per cent, has been widely expected; it is the accompanying text from bank governor Alan Bollard that will be of most interest.

Westpac senior currency strategist Johnathan Bayley said there was little debate about the increase, with Reserve Bank watchers unanimously picking a 25-basis point increase and the interest rate curve pricing the same. That would take the official cash rate to 6.5 per cent.

"Market reaction to the event will hinge instead on future policy signals and it's on this point that we differ from the majority," he said.

A Reuters poll of 14 economists shows just four banks - of which Westpac is one - expect a further rate increase in December.

That would see the kiwi move higher. "A new cycle high for the kiwi/greenback? Given the proximity of February's 71.02USc peak, and short-term US dollar risk, it shouldn't be too much of a problem," Bayley said.

The ANZ was expecting a "more balanced balanced statement around the increase" and picked 6.5 per cent as the cycle high.

Record high oil prices, mixed US economic data, low interest rates and a large and widening US current account deficit have weighed heavily on the US dollar, pushing it below several key technical levels and sparking even more selling.

Analysts said rising risk aversion in the run-up to the US presidential election on November 2 was also hurting the US dollar.

The trade-weighted index, which measures the kiwi against the currencies of New Zealand's five main trading partners is around seven-year highs at 69.7.