Kiwi Bounces Back

October 30th, 2009

Today’s Commentary

The New Zealand dollar dived two cents to its lowest in three weeks on Thursday, extending losses after the central bank dampened expectations of an early interest rate rise. The Reserve Bank of New Zealand (RBNZ) left rates on hold at 2.50 percent and moved to a neutral bias, as expected. But it said it expected to keep rates at current levels until the second half of 2010, against market expectations of a tightening in the first half of next year. A Reuters poll taken after the central bank decision showed the majority of analysts still expect rates to rise in the first half of next year, on expectations of a recovery in the domestic economy picking up momentum.

Total household borrowing in New Zealand rose in September as strong demand for housing-related finance offset a continued fall in consumer-related financing. The Reserve Bank of New Zealand said on Thursday seasonally adjusted total household borrowing rose 0.2 percent to NZ$178.1 billion ($128 billion) last month, after rising 0.3 percent in August. Total borrowing was 2.3 percent higher than a year ago. Housing-related borrowing rose 3 percent on a year ago, though consumer borrowing was down 5.6 percent, reflecting a drop in consumer spending amid high interest rates, and rising food and petrol costs.

The dollar slid against most currencies on Thursday after data showed the US economy returned to growth in the third quarter, reducing the greenback’s safe-haven allure and sending investors elsewhere for better returns. The solid gross domestic product reading renewed optimism about recovery in the global economy, prompting traders to buy higher-yielding currencies such as the Australian and New Zealand dollars.