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NZ dollar falls after RBNZ looks for ways to curb residential property investment

By Pattrick Smellie, 06 Mar 2015
FYI, this story is more than a year old

The New Zealand dollar fell after the Reserve Bank said it is looking at ways to curb lending to residential property investors, which could pave the way for it to lower interest rates.

The kiwi dropped to 74.60 US cents at 8am in Wellington, from 75.50 cents at 5pm yesterday. The trade-weighted index declined to 77.93 from 78.66 yesterday.

The local currency weakened after the central bank said it is looking at ways to tighten rules around lending for residential rental properties to better reflect the risks. Some traders speculate that further curbs on property market lending could help slow rising house prices, and allow the central bank to reduce interest rates.

The New Zealand dollar "has the dubious honour of being the worst performing currency, by some margin, over the past 24-hours," Kymberly Martin, a senior market strategist at Bank of New Zealand, said in a note. "The descent set in yesterday afternoon after the RBNZ released a consultation document on property investor loans The market presumably sees action toward controlling the bubbling NZ housing market as opening up greater prospects for RBNZ rate cuts."

Still, traders are pricing in just a 4 percent chance of a rate cut at next week's Reserve Bank meeting after the central bank previously said the 3.5 percent benchmark would remain on hold for some time, according to the Overnight Index Swap Curve. Traders expect the rate to fall by 19 basis points over the year ahead.

"We would suggest this is not an environment where a central bank would consider cutting the official cash rate," said the BNZ's Martin. "The market's response suggests it sees these steps as 'sorting out' the housing market to allow the bank greater potential to cut rates."

Separately, Moody's Investors Service said New Zealand's economy is expected to grow at an annual pace close to 3 percent this year as increased building activity in its two biggest cities, Auckland and Christchurch, offsets the sharp decline in dairy prices last year. The country's economy is "growing strongly" and growth is likely to remain robust through next year, which is supported by the government's expectation to return to an operating surplus in the 2016 financial year, Moody's said in a report.

In New Zealand today, fourth quarter wholesale trade data is scheduled for release at 10:45am.

The focus tonight will be on US monthly employment data for February, which is a closely watched indicator for how the world's largest economy is tracking.

The New Zealand dollar fell to 96.11 Australian cents from 96.51 cents yesterday, after touching a fresh post-float record of 97.21 cents yesterday.

The kiwi slipped to 67.67 euro cents from 68.21 cents yesterday after the European Central Bank confirmed it will start its quantitative easing bond buying programme on March 9.

The local currency weakened to 48.98 British pence from 49.49 pence yesterday after the Bank of England kept its policy unchanged, while the kiwi slipped to 89.62 yen from 90.43 yen yesterday.

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