New Zealand’s dollar fell from near a three-year high as Reserve Bank Governor Alan Bollard left interest rates at a record low, citing an “uncertain” outlook after a February earthquake devastated Christchurch.
The so-called kiwi snapped a two-day gain as Bollard said monetary policy won’t change for some time and called the currency’s recent advance “unwelcome.” Australia’s dollar climbed to a record versus the greenback on speculation the nation’s Reserve Bank will raise interest rates to contain inflation earlier than its U.S. counterpart. Federal Reserve Chairman Ben S. Bernanke yesterday signaled he’ll maintain record monetary stimulus.
“Bollard’s tone in the statement seems to be a bit more dovish than the market expected, much more focused on damage from the quake than on positives from the trade boom,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Bollard’s lambasting of the high New Zealand dollar was a bit of a surprise after he said earlier this month that soaring commodity exports helped explain the currency’s strength.”
The New Zealand dollar dropped to 80.53 U.S. cents as of 11:01 a.m. in Sydney from 80.80 cents in New York yesterday, when it had climbed to 81.08 cents, the strongest since March 19, 2008. It slid 0.5 percent to 66.05 yen and weakened 0.7 percent to NZ$1.3553 per Australian dollar.
Outlook ‘Very Uncertain’
“The outlook for the New Zealand economy remains very uncertain,” Bollard said in statement today in Wellington after leaving the official cash rate at 2.5 percent. “Higher oil prices and the elevated level of the New Zealand dollar are both unwelcome. They will have some dampening effect on economic activity.”
The so-called Aussie advanced to $1.0917, the strongest level since exchange controls were scrapped in 1983, before trading at $1.0915, from $1.0872 yesterday. The currency rose 0.3 percent to 89.53 yen, the highest since April 11.
Bernanke said at his first press conference yesterday that the Fed is likely to continue reinvesting its securities holdings, including mortgage-backed debt, when they mature even after its $600 billion bond-buying program ends in June.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell to 73.091 today, the lowest level since July 2008.
Last to Raise
“What we’re looking at right now is the Fed most likely being the last major central bank to hike” interest rates, except the Bank of Japan, said Khoon Goh, Wellington-based head of market economics and strategy at ANZ National Bank Ltd. “That’s why we’re seeing ongoing U.S. dollar weakness because the currency market is very much trading on interest-rate differentials at the moment.”
Swaps traders are betting the Reserve Bank of Australia will raise its target rate by 26 basis points over the next 12 months, up from bets on an increase of 19 basis points last week, a Credit Suisse Group AG index shows.
Consumer prices in the country gained 1.6 percent last quarter from the previous three months, the biggest jump since 2006, the Bureau of Statistics said yesterday. www.bloomber.com