NZ dollar gains as PM Key comments on speed of kiwi falls

NZ dollar gains as PM Key comments on speed of kiwi falls

July 20 (BusinessDesk) - The New Zealand dollar spiked higher after Prime Minister John Key said the kiwi had fallen faster than expected, and as investors weigh up how sharply the Reserve Bank will cut interest rates to prop up the country's ailing dairy sector, when it reviews policy on Thursday.

The kiwi rose to 65.62 US cents at 5pm in Wellington from 65.15 cents at 8am and 65.11 cents on Friday in New York. The trade-weighted index gained to 69.85 from 69.36 last week.

Key told reporters at his weekly post-Cabinet press conference the local currency had fallen faster than expected, and that low interest rates will help support the economy. Traders have fully priced in a 25 basis point cut to the 3.25 percent official cash rate on Thursday and an outside chance governor Graeme Wheeler will lop the rate by 50 points after a slump in global dairy prices last week spurred calls for more aggressive action. Wheeler has already started lowering rates to further stimulate an economy where inflation is running below the central bank's target band, and the prospect of another weak dairy season has raised concerns about its impact on growth.

"The kiwi will fall if Wheeler cuts by 50," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. "If it's 25, it will depend on his guidance - if there's strong guidance for more cuts coming the kiwi will go down a little bit or stay the same, if it's 25 with no solid guidance, the kiwi will go up."

New Zealand's two-year swap rate was unchanged at 2.85 percent from last week's close, and the 10-year swap rate slipped to 3.72 percent from 3.76 percent.

A BusinessDesk survey of 11 currency advisers today predicted the kiwi will trade between 63.50 US cents and 67.05 cents this week. Six expect the kiwi to gain, four bet it will fall and one says it will remain little changed.

New Zealand's service sector showed its highest level of activity for 11 months in June, according to the BusinessNZ-BNZ performance of services index.

Government data tomorrow will show how the country's tourism and migrant numbers are tracking.

The local currency climbed to 89.23 Australian cents from 88.30 cents on Friday in New York, and rose to 4.0760 Chinese yuan from 4.0424 yuan. It advanced to 60.62 euro cents from 60.13 cents last week and increased to 42.08 British pence from 41.71 pence. The kiwi rose to 81.50 yen from 80.78 yen last week.

(BusinessDesk)

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