Currency: Dollar shows little reaction to RB statement

The New Zealand dollar was hovering under US65c late today, showing little reaction to the Reserve Bank's decision to leave the official interest rate unchanged at 7.25 percent.

Shortly after the RB's 9am announcement, the kiwi spiked up to US65.25c but within minutes had settled back to US65.10c, from US65.01c about 5pm yesterday.

By about 5pm today it was worth US64.98c, having ranged between US65.27c and US64.85c during the day.

Earlier this week the unit hit a low of US64.73c, a level not seen since September 2004.

BNZ chief dealer Mike Symonds told NZPA the RB's monetary policy statement had generally been along the lines expected by financial markets.

But it was clear the RB's previous modest tightening bias was gone and it now had an easing bias.

"The question being, of course, when will they cut rates? Not if, it's when?" Mr Symonds said.

While the RB signalled clearly today it did not believe a rate cut was likely in 2006, the market's view was that the economy was slowing quite rapidly.

Some people believed the RB would be forced to cut rates probably around September, this year, he said.

The RB acknowledged the economy was slowing but remained concerned about inflationary pressures.

Today's statement had not changed the general sentiment towards the kiwi which remained "quite negative", and the market would remain focused on upcoming economic data such as fourth quarter GDP on March 24.

Inflation data would also be closely watched given the RB's concerns about inflationary pressures, Mr Symonds said.

Today's statement had not changed the likely outcome for the kiwi, which would continue to weaken into the middle of the year, and certainly towards the end of the year.

"We think there's a pretty good chance the kiwi will be trading towards US60c by the end of the year, but that again is going to be very much dependent on how the economy performs over the course of the next six or so months."

Enough evidence was available to suggest the economy was slowing "quite rapidly".

Rates:

5pm today 5pm Wednesday
NZ dlr US64.98c US65.01c
NZ dlr/Aust dlr A88.37c A88.62c
NZ dlr/euro 0.5445 0.5465
NZ dlr/yen 76.48 76.44
NZ dlr/stg 37.42p 37.42p
NZ TWI 67.07 67.18
Australian dollar US73.51c US73.40c
Euro/US dollar US1.1931 US1.1901
US dollar/yen 117.73 117.49

NZPA