NZ dollar treads water ahead of central bank rate-cutting actions

The kiwi was trading at 66.28 US cents at 5pm in Wellington. Photo / 123RF

The New Zealand dollar was treading water, awaiting expected central bank rate-cutting action later this week and next.

The kiwi was trading at 66.28 US cents at 5pm in Wellington from 66.30 cents at 7:55am. The trade-weighted index was at 72.92 points from 72.93.

The US Federal Reserve is expected to cut interest rates early Thursday, New Zealand time, by at least 25 basis points. It will be the first cut in more than a decade.

The cut is despite positive earnings reports from a string of household names, including McDonalds, Google, Twitter and Starbucks, and a better-than-expected preliminary US GDP report for the June quarter – it came in at a 2.1 per cent annual pace for the June quarter, down from 3.1 per cent in the March quarter but well above forecasts of 1.8 percent.

Then next week, New Zealand's own Reserve Bank will announce its latest monetary policy decision. It is expected to cut its official cash rate by 25 basis points, the second such move this year.

Tim Kelleher, head of institutional foreign exchange sales for Commonwealth Bank of Australia, says the local currency has tried and failed to rally, which makes it more prone to a fall.

"It's not able to sustain itself in a rally and, to me, it looks like it's weaker rather than just having buyers on the dips," Kelleher says.

Kelleher says the fact that former Fed chair Janet Yellen has said she favours a 25 point cut because US inflation is too low adds weight to the case for the Fed to cut.

"The United States isn't an island," Yellen was reported as saying. "We're part of the global economy. What happens in the rest of the world — in Europe, in Asia — affects the United States. And it's also true that US monetary policy affects conditions all around the globe."

New Zealand's inflation rate has mostly been below the middle of the RBNZ's 1 -3 per cent target range for the past decade.

The market was also reassured that US President Donald Trump vetoed suggestions from his trade advisor, Peter Navarro, to devalue the US dollar to win the upper hand in its trade war with China.

Trump has regularly accused China – and other nations – of unfairly devaluing the yuan to boost its trade figures.

The New Zealand dollar was trading at 95.97 Australian cents from 95.88, at 53.60 British pence from 53.54, at 59.58 euro cents from 59.56, at 71.97 yen from 72.03 and at 4.5690 Chinese yuan from 4.5625.

The New Zealand two-year swap rate eased to 1.2338 per cent from 1.2430 on Friday while the 10-year swap rate fell to 1.6500 per cent from 1.6600.