Dollar not ready to land any time soon

NIKO KLOETEN
Last updated 05:00 12/06/2014

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Exporters will be waiting a while for respite from the high New Zealand dollar, currency specialists say ahead of today's Reserve Bank's official cash rate announcement.

The dollar has risen strongly against most major currencies over the past week, with financial markets anticipating a 25-basis-point rise in the OCR to 3.25 per cent today.

The dollar has climbed from about US84 cents on June 4 to US85.29c at 1pm yesterday, and had also had a good run against the euro, up from about 61.7c to 63.03c in the same period.

Tim Kelleher, ASB's head of institutional foreign exchange sales, said markets had already factored in an OCR increase but there could still be a small "bounce" from an increase.

Attention would be focused on Reserve Bank governor Graeme Wheeler's comments as part of the quarterly monetary policy statement (MPS).

"The biggest query is probably what happens in July out to December. The market hasn't got as much priced in as the Reserve Bank so there's going to be some movement either way."

Kelleher said the strong performance against the euro followed last week's announcement by the European Central Bank of a negative deposit rate for banks. A negative interest rate means banks pay to deposit money with the central bank rather than earning interest on it.

"If you've got negative deposit rates, where do you put your money? You can put it in equities, where valuations are stretched by any measure, or you can put it in New Zealand Government bonds, which look like a pretty safe option," Kelleher said.

Bank of NZ senior strategist Kimberly Martin also said the "belated" fall by the euro was dragging the British pound down. The Kiwi has risen more than half a pence over the past two days and was at 50.92p yesterday.

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