Currency: NZ dollar drifts lower

The New Zealand dollar drifted lower today, which dealers attributed to a weak tone in the euro and indications of weaker equity markets.

The NZ dollar was at US66.15c at 5pm from US66.78c at 8am, but it was still higher than the US66.34c at 5pm on Tuesday. S&P futures drifted lower today and the NZ dollar followed that lead.

The correlation between the Standard & Poor's 500 Index and the NZ dollar against the greenback had risen from around 40 per cent in mid-April to closer to 85 per cent now, BNZ said.

The focus is also on tomorrow's Reserve Bank of New Zealand (RBNZ) monetary policy statement. The New Zealand central bank is widely expected to raise the official cash rate from 2.5 per cent to 2.75 per cent.

Imre Speizer, senior strategist at Westpac, said investors would be interested in what the RBNZ says about future policy. The Bank of Canada indicated when it raised rates earlier this month that further rises had to be weighted carefully against global economic developments and the Canadian dollar fell. Investors here would want to know if a rate rise was the start of a continued trend or not.

"The RBNZ will need to back any rate rise up with language that we are going to get a stream of hikes for the market to move," Mr Speizer said.

The NZ dollar was up to 0.5542 euro at 5pm from 0.5546 at the same time yesterday. It was at 60.50 yen from 60.80 yen yesterday.

Against the Australian dollar, the NZ dollar fell to A80.57c from A81.05c yesterday.

A speech by Reserve Bank of Australia governor Glenn Stevens today was interpreted as in line with previous statements, though slightly less upbeat in tone.

The Australian central bank has raised its official cash rate by 150 points to 4.5 per cent since last October.

The trade weighted index was down to 65.28 at 5pm from 65.39 yesterday.

- NZPA