New Zealand’s dollar climbed to a two-week high after Reserve Bank Governor Graeme Wheeler cast doubt on the need for deep interest-rate cuts, with traders brushing aside his call that further currency depreciation is needed.
The kiwi climbed for a third day even after Wheeler said “a more substantial” weakening in the currency is necessary during a speech to the Chamber of Commerce in Tauranga, New Zealand on Wednesday. Traders pared bets on the pace of policy easing after Wheeler said the economy isn’t weak enough to warrant big reductions in interest rates.
“Wheeler’s comments today continued to be more balanced than markets had been hoping for and confirmed recent reductions in positions shorting the kiwi,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. “Longer-term drivers of the currency remain in place with trend declines expected to continue after a period of consolidation.”
The New Zealand dollar gained 0.3 percent to 67.04 U.S. cents as of 1:56 p.m. in Tokyo, after climbing to 67.39, the highest since July 14. It slumped to a six-year low of 64.99 earlier this month.
The currency has tumbled almost 10 percent in the last three months, the worst performer of 10 major peers tracked by Bloomberg Correlation-Weighted Indexes.
Swaps traders the RBNZ cutting rates 34 basis points over the next six months, down from 41 basis points at the end of last week, data compiled by Bloomberg show.
“This speech was carefully crafted to deliver a message to markets,” said Robert Rennie, the global head of currency and commodity strategy at Westpac Banking Corp. in Sydney. “And that message was: do not get carried away here.”
Westpac closed on Tuesday bets for declines in the New Zealand and Australian dollars, Rennie said. The bank had put in place those positions last month. It continues to bet on further weakness in Canada’s currency, he said.
Australia’s dollar fell 0.2 percent to 73.24 U.S. cents. It surged 1 percent to 73.38 on Tuesday as the price of iron ore, the nation’s biggest export earner, increased. Canada’s currency fell 0.1 percent to C$1.2937 per dollar.
New Zealand’s central bank lowered the benchmark cash rate in June, and again last week to 3 percent, as slumping dairy prices weighed on the economy. The RBNZ, however, removed language describing the currency as “overvalued” in its statement, spurring a rally in the local dollar.
“Some local commentators have predicted large declines in interest rates over coming months that could only be consistent with the economy moving into recession,” Wheeler said in the speech as published on the RBNZ’s website. “At this point, we believe that several factors are supporting economic growth.”