Dollar shoots above US73c after bank boss’ speech

The New Zealand dollar rose above US73c after Reserve Bank governor Graeme Wheeler signalled no change in the stance of monetary policy, disappointing some in the market that had expected a more dovish tone to yesterday’s speech.

The kiwi rose to US73.16c as at 5pm yesterday and touched US73.25c immediately after the speech was released at 9am, from US72.16c on Monday. The trade-weighted index rose to 77.38 from 76.64.

In a speech to the Otago Chamber of Commerce, written by Wheeler and delivered by assistant governor John McDermott, the central bank reiterated that it saw 35 basis points of further cuts to the official cash rate while pushing back against critics who have called for either deeper cuts or no change to rates. Wheeler is being forced to defend monetary policy because inflation has undershot the policy targets agreement for almost two years, Auckland property prices are continuing to rise and the kiwi dollar is tracking above the average rate the bank projected in its latest forecasts.

“It’s fair to say that the market was probably expecting something on the dovish side so a short market was squeezed higher because they were disappointed,” said Mark Johnson, senior dealer at OMF. “There was

. . . a short market was squeezed higher because they were disappointed. Mark Johnson, OMF

nothing new in it. They’ve still got 35 points of rate cuts in the bill track.”

Johnson said the kiwi will probably remain in its recent range of about US70.5c to US73.5c through this week, ahead of Federal Reserve chair Janet Yellen’s speech at the Jackson Hole central bankers’ retreat. Like the RBNZ, the Fed has struggled to clearly telegraph the pace and direction of monetary policy.

San Francisco Fed president John Williams last week said the central bank should raise rates sooner rather than later, while Fed vice chairman Stanley Fischer said the bank was close to hitting its targets on employment and inflation, prerequisites for a rate hike. Yet a paper put out by Fed staffers suggested the only reason to hike rates would be to give the Fed ammunition to cut if needed.

The kiwi rose to A95.71c from A95c on Monday and lifted to 4.8668 yuan from 4.8072 yuan. It went up to 64.57 euro cents from 63.96c, increased to 55.64 British pence from 55.34p and gained to ¥73.29 from ¥72.77.