NZ dollar slips ahead of RBNZ announcement

Photo / Dean Purcell

The New Zealand dollar declined amid pessimism Ireland will be able to implement its tough budget stripping 15 billion euros of government spending over the next four years.

Ireland is preparing to pass its austerity budget, slashing government spending and hiking taxes in a bid to stave off a defaulted payment after it had to tap the European Union and International Monetary Fund for some 85 billion euros.

Though this will help alleviate the tensions over sovereign indebtedness in the region, there are still concerns over whether the limp Celtic Tiger will be able to implement its measures.

That comes ahead of tomorrow's Reserve Bank of New Zealand statement where Governor Alan Bollard is expected to keep the official cash rate on hold, though questions remain about how he views the economic recovery.

"If Bollard reflects how the economy is going as I suspect, he will be quite dovish and people will be reluctant to get into the kiwi boots and all," said Alex Sinton, senior dealer at ANZ New Zealand. The kiwi dollar is heading for a "January 1 finish of between 75 and 80 (U.S. cents)."

The kiwi slipped to 76.02 US cents from 76.23 cents yesterday, and was little changed at 68.53 on the trade-weighted index of major trading partners' currencies from 68.58.

It fell to 57.06 euro cents from 57.22 cents yesterday, and dropped to 48.14 pence from 48.44 pence.

It was unchanged at 76.90 Australian cents and rose to 63.42 yen from 62.94 yen yesterday.

Sinton said the currency may trade between 75.78 US cents and
76.33 cents today, with third-quarter building and manufacturing data unlikely to shift the kiwi, though it will help analysts firm up their gross domestic product forecasts.

Tomorrow's RBNZ statement comes after the Reserve Bank of Australia held the target cash rate at 4.75 per cent, and indicated lending rates had risen faster than the benchmark.

Governor Glenn Stevens didn't give any indication of where the central bank may go when it next meets in February, and markets are picking New Zealand interest rates to climb faster than their trans-Tasman neighbour over the coming year.

Traders have priced in 69 basis points of hikes by the RBNZ and
25 points by the RBA over the next 12 months, according to the Overnight Index Swap curve.

Stocks on Wall Street were bolstered by US President Barack Obama's proposal to extend his predecessor's tax cut regime for a further two years, while the Treasury Department liquidated its holding in Citigroup after bailing out the lender in 2008 at a reported profit of US$12 billion.