Dollar gains vs. Australian dollar as weak inflation builds case for RBA rate cut; RBNZ, Fed loom

The New Zealand dollar rose to near a six-month high against its trans-Tasman counterpart after weaker-than-expected inflation added pressure to the Reserve Bank of Australia to cut interest rates next week, while traders await policy decisions in New Zealand and the US.

The kiwi hit 94.89 Australian cents, the highest since May 6, trading at 94.41 Australian cents at 5pm in Wellington from 93.63 cents yesterday. The local currency followed the Aussie lower against the greenback, falling to 67.25 US cents at 5pm from 67.77 cents at 8am and 67.75 cents yesterday.

The Australian dollar dropped after Bureau of Statistics figures showed consumer prices rose at an annual pace of 1.5 percent in the September quarter, lagging behind the 1.8 percent pace economists were expecting. That provided more scope for the RBA to cut the target cash rate when it next reviews policy next week after Australia's major trading banks raised mortgage rates to preserve their margins in the face of stricter regulations.

"The Australian data is raising hopes over there that the RBA will cut rates sooner rather than later," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "In terms of the kiwi/Aussie, it boils down to what the RBNZ will do tomorrow."

Traders are waiting on the Federal Open Market Committee meeting on Wednesday in Washington, and New Zealand's Reserve Bank policy review tomorrow. Though neither central bank is expected to move on rates, investors are looking for a steer on when the Fed will start raising rates, and when the RBNZ will cut again.

New Zealand's two-year swap rate declined four basis points to 2.7 percent at 5pm in Wellington, and the 10-year swap fell five basis points to 3.46 percent.

Later this week, the Bank of Japan will review its policy, with expectations building Japan's central bank may extend its asset purchase programme. The kiwi dropped to 80.92 yen from 81.68 yen yesterday.

The local currency declined to 60.95 euro cents from 61.21 cents yesterday, and decreased to 43.93 British pence from 44.11 pence. It fell to 4.02755 Chinese yuan from 4.3030 yuan yesterday. The trade-weighted index slipped to 72.75 from 72.96.

(BusinessDesk)