NZ dollar holds ground ahead of budget

The New Zealand dollar was little changed against most major currencies ahead the release of the national budget today, which will help determine whether Standard & Poor's maintains or cuts the nation's AA+ credit rating.

Finance Minister Bill English is expected to unveil a budget of austerity at 2pm with markets anticipating that government will outline a path back to surpluses by capping spending, and making deep cuts to social programmes like Working for Families, the state's KiwiSaver contributions and interest-free student loans.

Currency traders will be watching for details on the size of the government's bond programme and projected deficits as a measure of overall funding for the next four years, and a possible reaction from international credit ratings agencies. S&P has a negative outlook on New Zealand's long-term foreign currency credit rating.

"Today the main focus will be the budget for the kiwi," said Khoon Goh, head of market economics & strategy at ANZ New Zealand. "I suspect the currency might take the budget in good stride if it shows that we're moving to surplus sooner rather than later and the credit ratings agencies don't downgrade us."

The kiwi recently traded at 78.76 US cents, little changed from 78.77 cents yesterday, and gained to 68.32 on the trade-weighted index of major trading partners' currencies from 68.20 yesterday.

It was mostly stable at 74.18 Australian cents from 74.14 cents previously, and rose to 64.30 yen from 63.80 yen. It was little changed at 55.32 euro cents from 55.25 cents yesterday, and rose to 48.73 pence from 48.51 pence previously.

Looking beyond the budget, traders will be watching out for the release of the Philadelphia Fed's Business Outlook Survey for May as a barometer of economic conditions in the world's biggest economy. Markets are betting confidence levels will improve with a read of 23, up from 18.5 in April, but still well down on March's 43.4 level.

The release of a Canadian inflation report tomorrow will also be in the spotlight as a lead on when the Bank of Canada is likely to raise interest rates.

"With the election uncertainty out of the way and a clear majority for conservatives, I wouldn't be surprised to see them hiking rates before the end of the month" in Canada, Goh said.

The kiwi may trade between 78.55 US cents and 79.20 cents today, he said, barring any shocks from the budget or ratings agencies.