The New Zealand dollar may gain against its Australian counterpart on speculation Reserve Bank of New Zealand Governor Graeme Wheeler may signal a bias toward higher interest rates in a statement tomorrow, according to Citigroup Inc. and UBS AG.
The New Zealand currency, nicknamed the kiwi, has fallen 1.9 percent versus the Aussie since Wheeler gave a speech on Feb. 20 that was widely misinterpreted by the foreign-exchange market as favoring currency intervention, according to Todd Elmer, a Singapore-based Citigroup strategist, in a client note. Home prices in New Zealand rose in February to the highest level since March 2008, giving the central bank further reason to eventually raise interest rates, said Geoffrey Yu, a senior currency strategist at UBS in London.
“The chances of a more hawkish tone from the central bank are rising,” Yu said in a phone interview. “After the statement, we see Aussie-kiwi going to 1.24, before heading below 1.20.”
The kiwi declined 0.7 percent to NZ$1.2501 per Aussie today in in New York trading, after weakening to NZ$1.2525, the lowest level since Jan. 30. One Aussie was last worth less than NZ$1.20 in October 2009.
The Reserve Bank of New Zealand is forecast to keep its official cash rate at 2.5 percent tomorrow when the central bank issues a policy statement and Wheeler holds a news conference.
While Wheeler outlined policy options to reverse the currency’s appreciation in a speech to manufacturers and exporters in Auckland on Feb. 20, including exchange-rate intervention, his prevailing point was that none are currently attractive, Citigroup’s Elmer wrote.
The kiwi has surged against 15 of its 16 most-traded peers since the end of 2008, including a 30 percent jump versus the dollar. The currency has fallen 3 percent against the Australian dollar.
“The bank will probably just reiterate that the currency is overvalued, but that New Zealand dollar strength will help to cap rises in inflation,” Elmer wrote about Wheeler’s March policy statement. “Even through policy makers may stop short of shifting towards an explicit tightening bias, this means the policy statement should have a hawkish slant.”
Home prices in New Zealand rose 6.3 percent from this time last year, Quotable Value New Zealand, a government agency, said in an e-mailed state on March 7. That’s the fastest rise since 2008.
During January’s policy statement, Wheeler said that the “bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply.”
“There is every reason to expect similar hawkish overtones from the March monetary policy statement,” wrote Yu in a note to clients.
The kiwi has climbed 3.3 percent during the past six months among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The U.S. dollar has gained 2.6 percent and the Aussie has gained 1 percent.
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