NZ dollar rebounds on firmer Aussie, RBNZ awaited

WELLINGTON: The New Zealand dollarrebounded on Wednesday, helped by a recovery in the neighbouring Aussie, asinvestors awaited the central bank's policy announcement due the following day.The market has fully priced in a quarter point interest rate cut by the ReserveBank of New Zealand and some analysts said the risks were for a more dovishstatement given tight credit conditions in an economy widely seen in recession.

"The fact that they need to get lower interest rates through willprobably mean that they will signal to the market that they might be moreaggressive going forward and the currency could move on the back of that," saidHayden Atkins, economist at Macquarie Securities. At 0505 GMT the kiwi was at$0.6693/96 compared with $0.6632/67 in late local trade on Tuesday. The NewZealand dollar was helped by a firmer Aussie which gained on rebounding oil andgold prices.

It was little moved after data showed export volumesfell for the second straight quarter in the April-June period, pointing to theeconomy being in a deeper-than-expected recession during the first half of 2008.Export volumes dropped 3.7 percent during the June quarter as dairy exportssuffered because of a drought at the start of the year and following a 3.9percent fall in the previous quarter, Statistics New Zealand (SNZ) said. TheReal Estate Institute of New Zealand (REINZ) said house prices fell while salestumbled to 26-year lows in August and further weakness in the market wasexpected until later in the year.

The RBNZ is expected to cutinterest rates to 7.75 percent on Thursday. It started its easing cycle in Julywith its first reduction in five years, saying a slowing economy will help torestrain inflation.

NZ bonds posted strong gains after U.S.Treasuries rallied on mortgage related buying and safe haven bids. The benchmark10-year government bond fell eight basis points to 5.88 percent. The two-yearswap rate was at 7.21/23 compared with Tuesday's 7.26 percent.