A Look at the New Zealand Dollar and Central Bank

The New Zealand dollar may finish the week lower as investors push out expectations on the timing of Reserve Bank interest rate hikes because a high kiwi and modest economic recovery are keeping inflation well within the bank’s target range.

The New Zealand dollar recently traded at 81.67 US cents, little changed from 81.74 at 8am this morning and from 81.87 cents at the close of trading in New York on Friday. That’s at the lower end of this week’s forecast range of 80.50 cents to 83.50 cents,

Three of the six analysts predict the kiwi will finish the week lower, two higher and one unchanged.

Traders have been reassessing the timeline for a rate hike by the Reserve Bank, and are pricing in just 10 basis points of increases over the coming 12 months, according to the Overnight Index Swap curve.

Governor Alan Bollard has kept the Official Cash rate at a record low 2.5 per cent for two of the past three years and is expected to keep the OCR on hold this Thursday.

Investors will be eyeing central bank meetings in the US and Japan this week. Federal Reserve policymakers are scheduled to meet on Tuesday, with post-meeting comments by Chairman Ben Bernanke on Wednesday being closely watched for fresh clues on any new supportive measures.

The Bank of Japan meets on Friday, where it is expected to give the economy a helping hand with further easing.

The RNZ Bank announcement could be easily overshadowed by anything the Fed might say. Bernanke will repeat the theme the US economy is in recovery but that the recovery is moderate.

Minutes from the Reserve Bank of Australia’s March meeting released earlier this month showed it’s poised to cut the cash rate in the face of a slowing economy. Governor Glenn Stevens has kept the cash rate unchanged at 4.25 per cent since December. Investors at this time have factored in a 100% chance of a rate reduction.

In the US, the world’s largest economy, home prices dropped sharply in February to hit the worst level in nearly a decade, according to a closely followed index released Tuesday. The S&P/Case-Shiller 20-city composite fell 0.8% compared to January levels

 A gauge of U.S. consumer confidence has declined for a second month, ticking down in April on lower expectations, even as views on the present situation increased, the Conference Board reported Tuesday. The consumer-confidence index fell to 69.2

New homes in the U.S. were sold at an annual rate of 328,000 in March, slightly above market forecasts. Yet sales fell by 7.1% last month because purchases of new homes in February were revised sharply higher, according to Commerce Department

There is no significant data set for release in New Zealand today.

It is a short week with markets closed in New Zealand and Australia on Wednesday for the Anzac Day holiday.

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