Currency: NZ dollar drifts lower

The New Zealand dollar traded in a fairly narrow range today against a backdrop of settled equity markets as caution about the global economic outlook continued.

By 5pm the NZ dollar had drifted lower to US69.18c from US69.33c at 8am but it was still above the US68.85c at 5pm yesterday.

It gained on Wednesday night against a weakening greenback after comments from the Reserve Bank of Australia (RBA) yesterday spurred traders' appetite for high-yielding currencies.

Weaker Fonterra online auction results today did little to dent the fortunes of the NZ dollar though it and a sluggish Australian dollar gave the local currency a downward bias. The globalDairyTrade TWI index of prices in the overnight auction was down 13.7 per cent from the previous month. This is the third monthly fall but prices are up 61 per cent year on year.

"Along with data released over the past few weeks for confidence, consents, house sales, we see today's result as reinforcing our view that the Reserve Bank of New Zealand will pause in its process of policy normalisation before the end of the year," Goldman Sachs JBWere chief economist Philip Borkin said.

"This potentially could come earlier than our current view of following 100 basis point of tightening, although we are sticking to that view for the time being," he said.

The RBNZ hiked the official cash rate by 25 basis points to 2.75 per cent in June, having kept the rate unchanged at eight reviews.

The RBA had held its key interest rate at 4.5 per cent yesterday, saying policy was appropriate given caution in global markets even as it remained optimistic about the outlook for Asia and the domestic economy.

The NZ dollar slipped to A81.60c at 5pm from A81.88c at the same time yesterday, but gained to 60.45 yen from 60.35, and was slightly up to 0.5493 euro. The trade weighted index was up to 66.09 around 5pm from 65.95 yesterday.

The NZ dollar is expected to encounter resistance at US69.70c and has support near the US69c figure.

- NZPA