Kiwi up on RBNZ rate view; Dollar drifts lower in subdued trading

The New Zealand dollar was the best performing currency on Tuesday as comments by the Reserve Bank of New Zealand Governor Graeme Wheeler lifted the kiwi in an otherwise muted summer trading session in Asia.

In a speech at the Otago Chamber of Commerce, Wheeler reiterated the central bank’s view that further cuts would be needed but warned of the risks of rapid easing. Wheeler said the RBNZ expects rates to be cut by a further 35 basis points in order to bring inflation back up to within the 1-3% target band.

The remarks took traders by surprise as they were expecting the RBNZ to adopt a more aggressive easing bias. The kiwi jumped by almost 1% against the US dollar after the speech to hit 0.7324. But it later dropped back before steadily climbing in Asian trading to reach a new session-high of 0.7339.

The Australian dollar benefited from the stronger kiwi and the weaker greenback to extend yesterday’s gains. The aussie was last up 0.3% at 0.7644 in late Asian trading.

The US dollar drifted lower against most major currencies on Tuesday as investors remained on the sidelines ahead of Fed Chair Janet Yellen’s speech at the Jackson Hole symposium on Friday. Markets will be looking to Yellen for fresh direction after recent hawkish remarks by several key Fed policymakers sparked confusion as their statements contrasted with the more dovish FOMC minutes of the July policy meeting.

The dollar was once again testing the 100 level against the yen in late Asian session today as the yen found some support from encouraging manufacturing PMI data. Manufacturing PMI in Japan rose from 49.3 to 49.6 in August, and although the figure remains in contraction territory, the output sub-component of the index showed the first expansion in six months.

In European currencies, the euro and the pound both headed higher against the subdued dollar. The single currency was firmer despite mixed French and German flash PMI data for August. The euro was trading around 1.1350 dollars after the data and ahead of the euro wide PMI figures expected later in the day.

The pound gained on the back of euro strength and dollar weakness to break above 1.32 dollars for the first time in 2½-weeks.

Crude oil prices continued to slip on Tuesday as concerns that the recent rally may have been overdone given the recent improvement in the outlook for supply weighed on the commodity. WTI oil futures were last trading just below $47 a barrel.

Coming up later in the day, flash August PMI readings for the Eurozone will be eyed, as well as the flash manufacturing PMI and new home sales figures for the US.