The New Zealand dollar held steady yesterday despite the New Zealand Institute of Economic Research's negative outlook for the economy.
The kiwi was little changed, buying 57.95USc from 58.05USc on Tuesday, while the aussie firmed to 66.02USc (from 65.76USc), although it came off its high after the Reserve Bank of Australia decided to hold rates.
The aussie was homing in on last week's 66.25USc 3 1/2-year peak, and rallied on the crosses in anticipation of it maintaining, or even increasing, its large interest rate differential.
Yields on US Treasury bonds fell to record lows on a fresh round of speculation that the Federal Reserve will cut the 1.25 per cent fed funds rate to fend off deflation.
The European Central Bank is expected to cut its 2.5 per cent lending rate at its meeting this week.
Addressing a conference in Berlin, US Federal Reserve chairman Alan Greenspan noted that, although deflation was unlikely, the cost of taking insurance against it was "very small". His comment fuelled market talk of a possible rate cut before long.
The Reserve Bank is almost certain to cut New Zealand's cash rate today in its quarterly Monetary Policy Statement. Most economists predict another quarter percentage point cut but a number believe Governor Alan Bollard is a man to act early and will cut by 50 basis points to try to stave off the effects of the slowdown.
The NZIER said in its quarterly predictions this week that economic growth would ease to about 1.8 per cent in the year to March 2005, from 4.5 per cent in the year to March 2003. A fall in export revenues would be the main brake on the economy, the institute said.
The euro was at US$1.1747, weaker than Tuesday's US$1.1759. The US dollar shrugged off news that sales fell sharply in May to strengthen to 119.14.
- NZPA
<I>Currency:</I> Kiwi shrugs off poor outlook to hold firm
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