Kiwi falls v Aussie dollar as central bank views diverge

The New Zealand dollar extended its decline against the Australian dollar on speculation the Reserve Bank will cut interest rates again this year as Australia's central bank keeps its cash rate unchanged, narrowing the kiwi dollar's premium.

The kiwi fell to 91.13Ac at 8am in Wellington, from 91.25Ac in New York on Friday and down from 91.69Ac in Asia at the end of last week. It traded at 66.80USc, down from 66.90USc in New York on Friday.

Traders are awaiting New Zealand inflation figures this week, which are expected to confirm increases in consumer prices are well below the level the central bank targets on average, over time. That would give the Reserve Bank room to cut the official cash rate a quarter point to 2.5% at its October 29 review, which the overnight interest swap curve puts at 78% odds, or at the full monetary policy statement on December 10. By contrast, the odds of a Reserve Bank of Australia cut at its next meeting are just 22% and that's also the extent of hikes seen to its cash rate in the next 12 months.

"We continue to expect further decline in the cross (kiwi versus Aussie)," said Kymberly Martin, a strategist at Bank of New Zealand. "This is partly predicated on our view the Reserve Bank will cut rates by year-end while the RBA remains on prolonged hold."

The consumers price index fell to 0.2% in the third quarter from 0.4% three months earlier, according to a Reuters survey. The annual rate may also have slowed to 0.2%, the figures scheduled for release next Friday are expected to show. Annual inflation hasn't been within the central bank's 1-3%  target range since the third quarter of last year, when it scraped in at 1%.

Martin said the greenback was broadly weaker on Friday even though Federal Reserve officials repeated the view that a rate hike from near zero was the bank's preferred position.

The kiwi fell to 4.2404 yuan from 4.2454 yuan on Friday in New York and traded at ¥80.27 from ¥80.38. It slipped to 58.78 euro cents from 58.87 cents and fell to 43.59 British pence from 43.69p.

(BusinessDesk)