Dollar holds as markets pick RBA to keep hiking rates

Wednesday 17th February 2010

The New Zealand dollar held above 70 US cents as markets sentiment for the trans-Tasman currencies was bolstered by the prospect of further rate hikes by Australia’s central bank.

The Reserve Bank of Australia’s minutes out yesterday indicated further increases in the nation’s benchmark interest rate are likely, though they didn’t expect to do so at every meeting. The Australian dollar surged 1.2% to 90.12 US cents, and noted RBA watcher Terry McCrann of the Australian newspaper speculated the central bank may hike rates by as much as 200 basis points this year. New Zealand’s central bank is on a slower track to tighten monetary policy, with markets picking the official cash rate to rise by 155 basis points this year, according to Overnight Index Swap curve.

“The kiwi’s back over 70 US cents for now, though to a certain extent it got dragged along with the Australian dollar,” said Chris Tennent-Brown, economist at Commonwealth Bank of Australia. “There’s no doubt (Australian) rates will go higher this year – we’re picking to about 5%,” which is 175 basis points above its current level, he said.

The kiwi climbed to 70.56 US cents from 70.31 cents, and was little changed at 65.04 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 65.02. It grew to 63.61 yen from 63.20 yen yesterday, and dropped to 78.31 Australian cents from 78.60 cents. It slipped to 51.31 euro cents from 51.44 cents yesterday, and was little changed at 44.73 pence from 44.75 pence.

Tennent-Brown said the currency may trade between 69.50 US cents and 71 cents today, though the improved global sentiment as US investors returned should support it in the top end of the range.

European Union finance ministers largely ruled out a bailout for debt-stricken Greece, though they pushed the Mediterranean nation to speed up its programme to reduce its deficit.

Stocks on Wall Street gained with fourth-quarter earnings on track to be expectations, with figures in so far ahead of forecasts by about 10%, according to Keith Poore, head of investment strategist at AXA Global Investors.

“At some stage the market had to turn its attention to the good news coming out of the US Q4 earnings season,” he said. “Sales growth continues to come through for a broad range on sectors. Thus far, earnings are delivering on the promise baked in the price.”

Businesswire.co.nz

Comments from our readers

No comments yet