The New Zealand dollar inched cautiously higher on Wednesday as recent sellers pulled back in case a looming policy decision surprised with anything less than a quarter-point cut in interest rates. The kiwi stood at $0.7393, having crawled from a five-month low of $0.7430 in the past three sessions.
It briefly touched $0.7417 after Finance Minister Bill English told parliament he expected a strong economic rebound next year as Christchurch rebuilt in the wake of a ruinous earthquake last month. So damaging was the quake that it turned the outlook for rates on its head, leading the market to abandon long-held bets of hikes from the Reserve Bank of New Zealand (RBNZ) and price in an imminent easing.
The outcome could cause wild moves for the Aussie-kiwi cross, which hit a 19-year high of NZ$1.3794 earlier this week in anticipation of an aggressive easing. In contrast, should the central bank ease by 25 bps, ICAP's Carr sees scope for the kiwi to outperform its neighbour simply because markets have priced in a lot of negative news. At home, the Aussie eased 0.3 percent on the US dollar to $1.0069, in part as soft housing finance gave bears an excuse to sell.
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