NZ dollar falls to three-week low against Aussie ahead of RBA meeting today

Tuesday 4th February 2014

The New Zealand dollar fell to its lowest in more than three weeks against its trans-Tasman counterpart ahead of a Reserve Bank of Australia decision on interest rates today.

The kiwi touched 91.85 Australian cents early this morning, its lowest since Jan. 10. The local currency was trading at 92.37 Australian cents at 8am in Wellington from 92.70 cents at 5pm yesterday. The New Zealand dollar slipped to 80.92 US cents from 81.16 cents yesterday.

The New Zealand dollar has slid against the Aussie after touching an eight-year high of 95.31 cents last month. Traders are speculating the Reserve Bank of Australia may remove its easing bias at its meeting this afternoon following stronger inflation data, narrowing the yield advantage with New Zealand, where rates are expected to rise next month.

"The key for the NZD/AUD cross today will be the meeting of the RBA," Kymberly Martin, market strategist at Bank of New Zealand, said in a note. "It is widely expected to remain on hold and further soften its easing bias after recent improvement in Australian data."

BNZ believes the kiwi-Australian cross rate has already reached its cyclical high above 95 Australian cents. There is currently buyer support in the 91.50-91.70 cent range, Martin said.

The Reserve Bank of Australia releases its decision at 4:30pm New Zealand time. The bank is expected to keep its benchmark rate at 2.5 percent, the same as New Zealand's.

Still, there is a risk that the RBA may maintain its easing bias with ANZ Bank New Zealand saying markets risk disappointment.

In New Zealand, Prime Minister John Key is scheduled to speak today about New Zealand and the global economy while the ANZ commodity price index for January will be published at 1pm.

The New Zealand dollar dropped to a 12-week low of 81.74 yen as investors favoured the safe haven Japanese currency amid concern about volatility in emerging markets. The local currency was trading at 81.84 yen at 8am in Wellington from 83.08 yen yesterday.

The kiwi slipped to 59.86 euro cents from 60.17 cents yesterday and advanced to 49.64 British pence from 49.39 pence after a report showed the UK PMI declined more than expected. The trade-weighted index dropped to 76.70 from 77.09 yesterday, extending its decline so far this year to 1.8 percent.

BusinessDesk.co.nz

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