Kiwi steady ahead of rate decision

File photo / Dean Purcell

The NZ dollar was little changed in a market reduced by the Wellington Anniversary holiday but it gained slightly against an Australian dollar weakened in reaction to disappointing economic data.

The NZ dollar was at US75.90c at 5pm, little changed from US75.85c at 8am and US75.64c at 5pm on Friday.

Westpac said the kiwi remained within well-rehearsed ranges between US74c and US78c and this range was likely to hold this week, even though there is "event risk" with the Reserve Bank to pronounce on the official cash rate (OCR) on Thursday.

"The big debate remains offshore - on the one hand Europe continues to muddle through with positive news coming out of the Spanish banking system on Friday and a sprinkling of hawkish comments from the European Central Bank chief Jean-Claude Trichet over the weekend all helping," Westpac said.

"However, we also have US fourth quarter gross domestic product plus the FOMC (Federal Reserve Open Market Committee) meeting to contend with and it is hard to see this combination hurting the US dollar."

The euro backed away from a nine-week high yesterday on heightened political uncertainty in Ireland, but it burst through the key resistance at the weekend on signs that Spain was willing to clear up its banking system and after a strong European business confidence survey.

Tough talk on keeping inflation in check from Trichet also gave markets an excuse to trim euro short positions. The kiwi eased to €0.5581 at 5pm from €0.5600 on Friday.

Goldman Sachs said economic data had vindicated the Reserve Bank's dovish stance in its December monetary policy statement. "As a result, we expect a similar cautious message to be delivered," Goldman Sachs said.

The bank is expected to hold the OCR at 3 per cent.

Westpac economists have noted that fuel prices are rising, and food price inflation will also need to be watched closely this year.

"But setting these factors aside, this is not an economy that's generating a lot of inflation under its own steam right now."

The Australian dollar fell after Australia's fourth-quarter final goods producers price index was weaker than expected, rising just 0.1 per cent when the market was expecting a 0.5 per cent rise.

The NZ dollar rose to A76.80c at 5pm from A76.54c on Friday. It was at 62.80 from 62.73 on Friday, while the trade weighted index was at 67.90 from 67.85 on Friday.

- NZPA