KEY POINTS:
The New Zealand dollar eased today ahead of tomorrow's key Reserve Bank quarterly Monetary Policy Statement.
No one expects bank governor Alan Bollard to change the cash rate and as always the interest will be in the commentary, ANZ chief dealer Murray Hindley said.
He said the kiwi eased along with the Australian dollar after the Reserve Bank of Australia left interest rates on hold and issued a dovishly perceived commentary and after Australian GDP data came in at the weak end of expectations.
The kiwi closed on US76.05c against US76.38c at the same time yesterday. The Australian dollar fell to US87.05c from US87.53c while the kiwi cross gained to A87.35c from A87.28c yesterday.
The RBA said it remained concerned about inflation, but the uncertain global outlook meant rates should stay at 6.75 per cent for the time being.
The central bank's new-found caution overshadowed news that Australia's economy grew a brisk 1.0 per cent in the third quarter and 4.3 per cent from a year earlier, as consumers went on a spending spree.
"By highlighting the global risks the RBA forced the market to reconsider expectations for another hike in February," said Rory Robertson, interest rate strategist at Macquarie.
An unexpected interest rate cut by the Bank of Canada bolstered the view that central banks have become increasingly worried by the credit crisis.
The Canadian central bank cited expectations of more global financial market difficulties linked to the US subprime mortgage market rout for its decision to cut its overnight lending rate 25 basis points to 4.25 per cent.
For the same reasons, investors are become more averse to the carry trade, where investors borrow in lower-yielding currencies, such as the yen, to fund purchases in higher yielding assets such as the NZ dollar.
However, ANZ Institutional Bank said the kiwi's high yields and an issue of uridashi bonds - NZ dollar-denominated bonds for the Japanese retail investor market - had seen ongoing support for the kiwi on dips.
The US dollar drifted against the euro after an overnight slide on speculation the Federal Reserve may cut interest rates aggressively next week to respond to the credit crunch and stave off a recession.
The BoC rate cut heightened expectations that the Bank of England could ease monetary policy this week and reinforced the view that central banks are getting more worried about the credit crisis.
Traders were also wary of a surprise rate cut by the European Central Bank, which holds a policy meeting on tomorrow.
"An interest rate cut by the ECB would make the market very volatile. For that reason, I think the chances of such an ECB move are very low," said Kengo Suzuki, a currency strategist at Shinko Securities.
"But we cannot completely overlook surprise actions by central banks due to the growing credit concerns."
Reuters currency rates 5pm today 5pm Tuesday
NZ dlr/US dlr US76.05c US76.38c
NZ dlr/Aust dlr A87.35c A87.28c
NZ dlr/euro 0.5150 0.5212
NZ dlr/yen 83.70 84.36
NZ dlr/stg 36.98p 37.02p
NZ TWI 70.29 70.69
Australian dollar US87.05c US87.53c
Euro/US dollar 1.4764 1.4659
US dollar/yen 110.07 110.43
- NZPA