Forex - New Zealand dollar gains after RBNZ holds rates steady

Investing.com - The New Zealand dollar rose on Thursday after the central bank held rates pat and even warned about the high level of the currency impacting scope for further rate hikes.

The Reserve Bank of New Zealand on Thursday held its official cash at 3.5% as expected, but surprised by stepping up the warning about the strong exchange rate.

NZD/USD traded at 0.8198, up 0.05%, after the announcement. Elsewhere AUD/USD traded at 0.9160, up 0.03% and USD/JPY traded at 106.83, down 0.03%.

The outlook for inflation in New Zealand was revised downwards with the previous estimate it would breach the mid-point of the 1% to 3% target band in June next year pushed out to September 2016.

The New Zealand dollar, while it has fallen somewhat over the past month, has still not adjusted to reflect the 45% fall in global dairy prices since February, the RBNZ said.

"The high exchange rate continues to restrain growth in the traded sectors," said Governor Graeme Wheeler.

"Its current level remains unjustified and unsustainable. We expect further depreciation, which should be reinforced as monetary policy in the U.S. begins to normalize."

Wheeler identified four factors with respect to the timing and extent of future rate rises: how house prices are responding to recent policy changes and near-record net migration; how capacity pressures are driving domestic inflation; business and household inflation expectations and price setting in the current, low inflation, environment; and how the exchange rate is adjusting to export price falls.

China could release August money supply, new loans and total social financing data and August CPI and PPI data are due at 0930 Beijing time (0130 GMT). CPI rose 2.2% year-on-year, according to expectations, and PPI fell 1.1%.

In Australia, with the August labor force data also due at 1130 Sydney (0130 GMT) with 12,000 new jobs expected and a rate of 6.3%

September MI inflation expectations are due half an hour before that (0100 GMT).

Overnight, the dollar traded largely higher against most major currencies as investors continued to take up positions betting that the Federal Reserve will raise interest rates sooner in 2015 than once anticipated.

Many market participants are hoping the U.S. central bank's statement on monetary policy next week will hint at when rates may rise.

Despite disappointments here and there, U.S. economic indicators collectively point to a recovery that is gaining steam.

The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.01% at 84.38.

On Thursday, the U.S. is to produce its weekly report on initial jobless claims.