Dollar eases, investors await rate decision

The New Zealand dollar closed lower today but recovered from its worst levels in overnight trading as investors globally continued to shun risky investments.

Investors are also waiting to see if the Reserve Bank of New Zealand holds rates unchanged in an announcement tomorrow as expected. ANZ said today that the first hike in the official cash rate is not expected until June.

The NZ dollar was US70.75c at 5pm from US70.89c at 9am and US71.11c at 5pm yesterday. It traded as low as US70.23c in overnight trading, which was its lowest level since December 23.

Investors continue to worry that global growth could be affected by moves by China to constrain lending. There is also an interest rate decision due in the United States.

Investors have ditched growth sensitive currencies like NZ dollar and Australian dollar in favour of the relative safety of the US dollar and yen as risk aversion rises. The euro fell 125.53 yen, its lowest level since April 2009 in Asian trading today.

"While worries about the global outlook have kept the NZ dollar fragile so far this week, we continue to think that dips below US70.00c will be short-lived," BNZ senior strategist Danica Hampton said.

"China's efforts to curb bank lending are aimed at preventing the economy from overheating, but investors fear slower Asian growth could de-rail the global recovery."

The NZ dollar fell to A78.43c at 5pm against the Australian dollar from A78.88c at the same time yesterday, and to 0.5026 euro from yesterday's 0.5040.

News that the Australian consumer price index rose 2.1 per cent in the year to December, slightly higher than market expectations of a 2 per cent increase was seen as a reason for a hike in interest rates in Australia. The Reserve Bank of Australia's board is due to meet on February 2 to consider interest rates.

The NZ dollar fell to 63.09 yen from 63.96 yen yesterday.

The trade weighted index was 64.55 from 64.95 at 5pm yesterday.

- NZPA