Dollar declines against Aussie ahead of RBA interest rate decision

The New Zealand dollar weakened against the Australian dollar as traders have already priced in an interest rate cut by the Reserve Bank of Australia today.

The kiwi slipped to 96.64 Australian cents at 8am in Wellington, from 96.88 cents at 5pm yesterday. The local currency declined to 75.09 US cents from 75.21 cents yesterday after US manufacturing data met expectations, bolstering optimism about the outlook for the world's largest economy.

In local trading today, all eyes will be on the RBA's interest rate decision after the central bank surprised some economists last month by cutting its benchmark rate to a record low 2.25 percent, saying weak domestic demand and tame inflation in the face of falling crude oil prices will keep output growth below trend for longer. Heading into today's announcement, traders are putting on a 59 percent probability of a rate cut and are betting on 54 basis points of cuts over the next 12 months, according to the Overnight Index Swap Curve.

"With the market now pricing around a 60 percent chance of a cut today, we are all but guaranteed a significant Australian dollar reaction whatever the RBA does," Bank of New Zealand senior market strategist Kymberly Martin said in a note. "If the RBA were to deliver a cut the NZD/AUD cross would be a likely beneficiary and vice versa."

The BNZ's Martin said the cross-rate faces resistance at last month's record post-float high of 97.07 Australian cents. The RBA will release its decision at 4:30pm New Zealand time.

In New Zealand today, the latest monthly ANZ commodity price index is scheduled for publication at 1pm and state valuer Quotable Value is due to release its monthly house data at midday. The focus overnight will be on the fortnightly GlobalDairyTrade auction.

The New Zealand dollar slipped to 67.08 euro cents from 67.29 cents yesterday following better-than-expected European inflation and employment data.

The kiwi was little changed at 48.85 British pence from 48.84 pence yesterday, and at 90.15 yen from 90.12 yen. The trade-weighted index slipped to 78.20 from 78.36 yesterday.

(BusinessDesk)