NZ dollar trades in narrow range pre-rate decision

File photo / NZH

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 NZ dollar 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 of New Zealand (RBNZ) to pronounce on the official cash rate 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.

"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," Westpac said.

The euro backed away from a nine-week high today on heightened political uncertainty in Ireland, but it burst through the key resistance during 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 provided markets with an excuse to trim euro short positions in recent days.

The NZ dollar eased to 0.5581 euro at 5pm from 0.5600 euro on Friday.

Goldman Sachs said economic data has vindicated the RBNZ'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 RBNZ is expected to hold the official cash rate at 3 per cent.

Westpac economists have noted that fuel prices are rising, and food price inflation will also need to be watched closely in 2011.

"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 yen from 62.73 yen on Friday, while the trade weighted index was at 67.90 from 67.85 on Friday.

- NZPA