close
MENU
2 mins to read

NZ dollar soars to 2-month high vs Aussie as RBA cuts key rate on weak inflation

The kiwi touched 92.94 Australian cents.

Jonathan Underhill
Tue, 03 May 2016

The New Zealand dollar jumped to a two-month high against the Australian dollar after the Reserve Bank of Australia cut its cash rate citing weaker-than-expected inflation, widening the gap with local interest rates.

The kiwi touched 92.94 Australian cents, the highest since Feb. 29, and traded at 92.23 cents as at 5pm in Wellington, from 91.42 cents immediately before the RBA statement and from 92 cents late yesterday. The currency dropped to 69.85 US cents, having earlier gained to as high as 70.53 cents, just below the 10-month high 70.54 cents reached in April, from 69.93 cents yesterday.

The market had been evenly split on a rate cut by the RBA since figures last week showed inflation fell 0.2 percent in the first quarter, for an annual rate of 1.3 percent, keeping the rate below the central bank's 2 percent-to-3 percent target. The currency reaction increases pressure on New Zealand central bank governor Graeme Wheeler to cut the official cash rate to 2 percent, to bring the kiwi down to a level to try to stoke tradables inflation.

"Wheeler is under pressure because of the currency - that's the channel," said Imre Speizer, a strategist at Westpac Banking Corp. "They cut, it was a surprise. The kiwi has risen and all else being equal that's an additional reason for the RBNZ to cut."

Whether Wheeler does cut rates at the June 10 policy review will depend on the extent to which the trade-weighted index remains above the central bank's projections, he said.

The TWI initially surged after the RBA rate cut, to reach 74.02, before falling back to 73.43, from 73.53 yesterday. In its March monetary policy statement, the central bank forecast the TWI to average 70.9 in the second quarter. New Zealand's consumers price index rose 0.2 percent in the first quarter, for an annual rate of 0.4 percent, well below the bank's 1 percent-to-3 percent target range.

The kiwi had earlier strengthened against a broadly weaker US dollar after a report showed US manufacturing activity slipped in April, raising concern about the pace of recovery in the world's largest economy. Traders will now be looking ahead to the GlobalDairyTrade auction overnight, with expectations dairy prices will record another modest gain.

The local currency fell to 73.96 yen from 74.54 yen yesterday and fell to 4.5205 yuan from 4.5271 yuan. The New Zealand dollar slipped to 47.58 British pence from 47.87 pence yesterday and fell to 60.53 euro cents from 60.97 cents.

The two-year swap rate rose 5 basis points to 2.28 percent and the 10-year swaps rose 6 basis points to 3.01 percent.

(BusinessDesk)

Jonathan Underhill
Tue, 03 May 2016
© All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.
NZ dollar soars to 2-month high vs Aussie as RBA cuts key rate on weak inflation
57841
false