Dollar back over AU99c as RBA raises rate cut prospect

The New Zealand dollar gained against the Aussie after Reserve Bank of Australia governor Glenn Stevens raised the prospect of an interest rate cut as early as next month to bolster a weak economy.

The kiwi touched 99.27 Australian cents overnight, and was trading at 99.08 cents at 8am in Wellington, from 98.69 cents at 5pm yesterday. The local currency slipped to 76.54 US cents from 77.01 cents yesterday.

Stevens, speaking at a luncheon of the American Australian Association in New York, said "interest rates should be quite accommodative and the question of whether they should be reduced further has to be on the table." He also played down the impact of a bubbling Sydney housing market, suggesting there was too much focus on it given 80 percent of Australians don't live in Sydney. The RBA surprised traders by not cutting its 2.25 percent interest rate at its last meeting, with the minutes detailing its discussions scheduled to be released today. Traders are pricing in a 56 percent chance that the RBA will cut rates at its next meeting on May 5, according to the Overnight Index Swap Curve.

"That very much saw the Australian dollar get sold off, or accelerated its sell-off overnight as the US dollar broadly strengthened," said Stuart Ive, senior dealer, foreign exchange, at OMF. "The kiwi/Aussie may have another little bit of a run on the upside."

In a question and answer session following his speech, Stevens said the Australian dollar would likely fall further.

Currency analysts have speculated that the New Zealand dollar could reach A$1 as a weaker Australian economy leads to interest rate cuts compared with a stronger outlook for the New Zealand economy, where interest rates are on hold.

"The chances of parity happening are probably quite high but as a long term situation it won't be sustainable as there will be plenty of selling that the market will be looking at doing anything above parity," said Ive. "We might have a brief period of reaching parity."

In New Zealand, traders are pricing in just a 2 percent chance that the Reserve Bank of New Zealand will cut its 3.5 percent benchmark interest rate at its April 30 meeting, according to the Overnight Index Swap Curve.

Today, Finance Minister Bill English is speaking on the "year in review" to the Canterbury business community in Christchurch.

The New Zealand dollar slipped to 51.31 British pence from 51.49 pence yesterday, weakened to 71.27 euro cents from 71.46 cents and fell to 91.27 yen from 91.46 yen yesterday. The trade-weighted index dropped to 79.95 from 80.20 yesterday.

(BusinessDesk)