NZ dollar holds gains as traders dig in for central bank meetings

The New Zealand dollar held gains in the local trading session as traders remain cautious ahead of the Reserve Bank and US Federal Reserve policy meetings on Thursday.

The kiwi traded at 78.94 US cents at 5pm in Wellington from 78.97 cents at 8am, up from 78.75 cents yesterday. The trade-weighted index advanced to 76.70 from 76.43 last week, after local banks were closed yesterday for the Labour Day holiday.

The greenback fell yesterday after weaker than expected US data eroded confidence the Fed will start hiking interest rates earlier than anticipated, though the Federal Open Market Committee meeting on Wednesday in Washington will give investors a clearer steer on the central bank’s thinking. That meeting comes just ahead of New Zealand’s Reserve Bank policy review on Thursday, which is expected to keep the key rate unchanged at 3.5 percent. Investors will be looking to see whether governor Graeme Wheeler takes a softer tone on future hikes, given the tepid pace of inflation, which is at the bottom end of the bank’s tolerance range.

“There’s not a lot to get excited about until the Reserve Bank on Thursday, and before that the US FOMC,” said Michael Johnston, senior dealer at HiFX in Auckland. “We think the US dollar will continue to show more strength than weakness in the coming weeks and months, and in the next six to nine months we’ll see the kiwi dollar a good chunk lower.”

HiFX’s Johnston said the kiwi may trade between 77.90 US cents and 79.50 cents in the lead-up to the central bank meetings.

The local currency gained to 89.55 Australian cents from 89.33 cents yesterday after an ANZ-Roy Morgan survey showed consumer confidence at a 12-week high across the Tasman.

The kiwi was little changed at 85.11 yen at 5pm in Wellington from 85.03 yen yesterday after Bank of Japan governor Haruhiko Kuroda told policymakers the central bank is half-way through plans to lift inflation to an annual 2 percent pace, and will continue to do so for as long as necessary.

The local currency edged up to 62.12 euro cents from 61.98 cents yesterday, and was little changed at 48.96 British pence from 48.89 pence.