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NZ dollar gains after RBNZ's Wheeler keeps rates uncanged, upbeat on local outlook

By Pattrick Smellie, 12 Mar 2015
FYI, this story is more than a year old

The New Zealand dollar gained after Reserve Bank governor Graeme Wheeler kept the benchmark interest rate unchanged, saying the local economy was in a healthier state and not in the same boat as the 24 other central banks that have cut rates this year.

The kiwi rose to 72.95 US cents at 5pm in Wellington from 71.84 cents immediately before the statement, and 72.39 cents yesterday. The trade-weighted index advanced to 77.37 from 76.51 yesterday.

Wheeler kept the official cash rate at 3.5 percent, while dropping the prospect of any rate hikes in the next two years as cheap oil and globally low inflation keep the central bank nervous about wage and price expectations. Traders latched on to his comments that the central bank weighed up the fact that most than 20 other monetary authorities had eased policy this year, but decided that New Zealand's economy was in a relatively sweet spot and already operating stimulatory policy.

"Even though the MPS (monetary policy statement) was quite clear - up or down - the market got the feeling there's still more up than down," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "That's driven the New Zealand dollar higher."

The kiwi rose to 825.17 Korean won after the Bank of Korea became the 24th central bank to cut rates this year. It was trading at 812.80 won before the release.

New Zealand's central bank is assessing whether its view that its neutral policy rate should be around 4.5 percent as globally low inflation feeds into the local economy via the strong exchange rate.

Wheeler reiterated his view that the local currency was unjustifiably high and unsustainable, and that "a substantial downward correction in the real exchange rate was needed to put New Zealand's external accounts on a more sustainable footing."

The local currency gained to 96.16 Australian at 5pm in Wellington from 95.20 cents yesterday, and advanced to 4.5682 Chinese yuan from 4.5322 yuan. It rose to 88.75 yen from 87.84 yen yesterday.

The kiwi gained to 69.43 euro cents from 67.73 cents yesterday and rose to 48.86 British pence from 47.99 pence.

The two-year swap rate increased to 3.55 at 5pm in Wellington from 3.525 yesterday, and the 10-year swap rate gained to 3.83 from 3.825.

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