NZ dollar trades off lows on buying ahead of MPS

The New Zealand dollar recovered from intraday lows amid buying ahead of the monetary policy statement on Thursday, as traders speculate the central bank could be less dovish than the market is pricing.

The kiwi rose to 85 US cents from 84.88 cents at 8am to be lower than in late trading yesterday at around 85.13 cents. The trade weighted index traded at 79.28 from 79.16 at the start of the day.

The Reserve Bank is poised to raise the official cash rate to 3.25 percent on Thursday, although opinions differ whether governor Graeme Wheeler will either project a lower track for OCR increases or reiterate some 200 basis points of tightening by late 2015 or early 2016. An International Monetary Fund report on New Zealand today painted a relatively upbeat picture of an economy it sees growing 3.5 percent this year. Traders don’t want to bet on a weaker track by shorting the kiwi dollar and bid the currency up when it has fallen recently.

“Whenever it sells off, like it did overnight, buyers will come back in,” said Imre Speizer, senior market strategist at Westpac Banking Corp. “They don’t want to go into the RBNZ short the kiwi.”

Investors will be watching for signals on the pace of OCR increases in the MPS although Wheeler may not project the timing of hikes this year, Speizer said. Wheeler wants to avoid sending a message that there will be a pause in rate hikes this year, given rates are still accommodative.

The New Zealand dollar traded at 90.83 Australian cents from 91.02 cents the previous day.

The kiwi was little changed at 62.54 euro cents from 62.40 cents yesterday and edged lower to 50.54 British pence from 50.65 pence ahead of data on UK industrial production. The local currency slipped to 86.93 yen from 87.29 yen yesterday.

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