NZ TWI rises to post-float record, raising chances RBNZ’s Wheeler will talk down the kiwi tomorrow
By Tina Morrison
March 12 (BusinessDesk) – The trade-weighted index, which measures the New Zealand dollar relative to the currencies of
major trading partners, rose to a post-float record, prompting speculation Reserve Bank governor Graeme Wheeler will try
to talk down its value when he announces an interest rate hike tomorrow.
The trade-weighted index jumped as high as 79.68 overnight, up from 79.50 yesterday and surpassing its previous high of
79.67 in April last year. It recently traded at 79.44. The New Zealand dollar slipped to 84.61 US cents at 8am in
Wellington from 84.80 cents at 5pm yesterday.
The kiwi has held at elevated levels ahead of the Reserve Bank meeting tomorrow where interest rates are set to start
rising on concern a strengthening economy will push up inflation. In recent days, the local currency has gained against
its Australian counterpart amid concern Chinese growth and further bond defaults in China weigh on the Aussie.
A higher local currency will concern New Zealand’s central bank because it makes the nation’s exports less competitive.
In its December forecast, the Reserve Bank projected the TWI would average 77.4 in the March quarter.
“There will be some effort to try and talk it down,” said Stuart Ive, senior adviser at OMF. “It will certainly be high
on their list of concerns, without a doubt, you have an exceptionally elevated currency. It’s almost impossible that
they will not mention it.”
In its December forecast track for the 90-day bank bill rate, seen as a proxy for the OCR, the Reserve Bank projected
the rate would increase to 2.7 percent in the March quarter of 2014, rising to 3.8 percent by the end of the year, and
4.8 percent by March 2016.
“At the moment the market is expecting (interest rate hikes) mainly in quick succession at the front end of the curve,”
said OMF’s Ive. “The RBNZ may turn around and say because there are so many uncertainties in the world that it’s going
to be a very gradual pace, or slower pace, spread over the year.”
The central bank’s ability to weaken the currency is limited and the current elevated level isn’t sustainable over the
long term, Ive said.
The New Zealand dollar touched a six-week high of 94.39 Australian cents this morning, and was trading at 94.32 cents at
8am from 93.94 cents at 5pm yesterday. In Australia today, traders will be eyeing the Westpac consumer sentiment survey
for March and a report on January home loans.
Australian Reserve Bank deputy governor Philip Lowe is speaking tonight in Sydney on demographics, productivity and
innovation, in a session open to media questions.
The local currency slipped to 61 euro cents from 61.14 cents yesterday, dropped to 50.88 British pence from 50.95 pence
and declined to 87.06 yen from 87.57 yen.
(BusinessDesk)