WELLINGTON: The New Zealand dollar bounced on Thursday after the Reserve Bank of New Zealand reiterated its outlook for interest rate rises next year while protests against the strength of the currency were not as aggressive as some had expected.
In early Asia Pacific trade, the kiwi rose to $0.8277 after RBNZ Governor Graeme Wheeler said that rates would rise in 2014 as economic growth picks up.
Yet he also added that the ongoing strength in the currency would give him more flexibility regarding the timing and size of monetary tightening.
The comments lifted the kiwi from a session low of $0.8193 hit in earlier trade, when the US dollar climbed broadly after the US Federal Reserve said it would keep its economic stimulus in place but dropped a reference to tightening financial conditions.
Market participants said that some traders had been expecting Wheeler to take a more aggressive stance against currency strength. "There was quite a lot of anticipation that the (RBNZ) statement would be softer ... it appears that the market was overly anticipating a dovish statement," said Nick Tuffley, chief economist at ASB Bank in Auckland.
"The bounce back has been driven by the reinforcement that the Reserve Bank would prefer the currency to be lower but it's not trying to actively jawbone it down, and that it's very unlikely to intervene." The Australian dollar edged up on the back of the kiwi's gains, rising to $0.9486 after slipping as low as $0.9441 in earlier trade.
Many in the market expect the RBNZ to raise interest rates by 25 basis points from a record low 2.5 percent early next year. Such a move would likely make the New Zealand central bank the first among developed countries to tighten policy following the global financial crisis.
This view has boosted the kiwi, which hit a five-month high against a currency basket earlier this month and hovers near a post-float high. Then again, further currency strength could take some of the heat off the central bank to tighten monetary policy.
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