New Zealand Dollar Gains On RBNZ's Comments

 
  By Rebecca Howard 
 

        WELLINGTON, New Zealand--The New Zealand dollar was stronger late Wednesday as investors reacted positively to comments from the central bank.
        Reserve Bank of New Zealand Gov. Graeme Wheeler early Wednesday reiterated that further rate cuts are likely needed to spur economic growth and generate inflation.
        "We think the economy is currently growing at an annual rate of around 2.5%. To maintain growth around potential and return CPI inflation to its medium-term target level, some further monetary-policy easing is likely to be required," Mr. Wheeler said in a speech to ExportNZ in Tauranga.
        But the central bank governor also said "large declines in interest rates" would be linked to a recession and "at this point, we believe that several factors are supporting economic growth."
        The New Zealand dollar got a lift when "he linked substantial rate cuts to recessionary conditions, perhaps having a go at some of the experts in the market who have predicted large cuts in the future," said Western Union Business Solutions Corporate Dealing Manager Chris Hunter.
        The RBNZ speech reinforced that further easing is likely, "but also explicitly dampened the more exuberant official cash rate cut expectations," ASB Bank Chief Economist Nick Tuffley said. While some commentators are picking the cash rate to drop to 2.0%, the central bank has "given a pointed signal that--at this point in time--the RBNZ is not seriously contemplating an OCR lower than 2.5%-2.75%." We remain comfortable with our OCR outlook of 2.5% by October, Mr. Tuffley said.
        By the end of the session, however, the New Zealand dollar had pared some of its gains. As the larger markets opened, investors had time to digest the comments "and see that really nothing has changed for the Kiwi. Everyone is expecting a cut in September and beyond that there is a very strong probability of a further cut by the end of year," Mr. Hunter said.
        The New Zealand dollar was at US$0.6710 in late Wellington trading, compared with US$0.6666 late Tuesday. It touched a high of US$0.6739 after the speech. It was at 0.9165 Australian dollars versus A$0.9105 late Tuesday.
        Write to Rebecca Howard at rebecca.howard@wsj.com; @FarroHoward
        (END) Dow Jones Newswires

        July 29, 2015 01:54 ET (05:54 GMT)

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