Dollar gains vs Australian dollar as unemployment rises across the Tasman

The New Zealand dollar gained against its transtasman counterpart after Australia's unemployment rate unexpectedly rose, matching a 13-year high on a swelling labour force.

The kiwi rose to 89.13Ac from 88.69Ac yesterday. It bounced from a six-year low against the greenback, trading at 65.38USc at 5pm in Wellington from 65.01USc at 8am and 65.22USc yesterday.

Australian Bureau of Statistics data today showed the unemployment rate rose to 6.3% percent in July from 6.1% percent a month earlier, as the proportion of people looking for work increased. The Reserve Bank of Australia this week kept the target cash rate unchanged at 2%, noting "somewhat stronger growth of employment" and will tomorrow release its monetary policy statement.

"Australia's unemployment was slightly higher but overall not a bad set of numbers – the labour force growing was encouraging," said Raiko Shareef, currency strategist at Bank of New Zealand in Wellington. "The market took the headline weakness, which saw the Aussie/kiwi lower," he said referring to the global norm of using Australia's currency as the benchmark for the cross-rate.

The kiwi's strengthening against the Australian dollar underpinned support against the greenback as New Zealand's currency attracted buyers.

BNZ's Mr Shareef said the kiwi failed to break below 65USc during northern hemisphere trading, and the absence of any negative local data helped it rally from the six-year low.

"It's a finicky market ahead of some pretty significant events," he said.

Fonterra Cooperative Group's board is expected to cut the forecast payout to farmers after global milk prices have extended their slump this year, putting pressure on the nation's terms of trade. That deterioration prompted New Zealand's central bank to start cutting interest rates in June.

New Zealand's two-year swap rate increased to 2.88% at 5pm in Wellington from 2.835% yesterday, and the 10-year swap rose to 3.7% from 3.6375%.

US non-farm payrolls for July on Friday in Washington are the next major data as markets weigh up the prospects for a rate hike by the Federal Reserve when it next reviews policy next month.

The kiwi was little changed at 41.84 British pence from 41.96p yesterday ahead of the Bank of England's policy review on Thursday in London. The local currency traded at 59.92 euro cents from 60.03 cents yesterday, and rose to ¥81.58 from ¥81.15. The kiwi increased to 4.0698 Chinese yuan from 4.0506 yuan yesterday, and the trade-weighted index advanced to 69.83 from 69.67.

(BusinessDesk)