RBA, Chinese data loom to influence kiwi dollar today

Tuesday 1st July 2014

The New Zealand dollar was little changed against the Australian dollar ahead of today's Reserve Bank of Australia decision on interest rates and the release of manufacturing data for China, the largest trading partner for both countries.

The kiwi edged lower to 92.80 Australian cents at 8am in Wellington, from 92.86 cents at 5pm yesterday. The local currency was unchanged at 87.52 US cents.

The New Zealand dollar has appreciated 1.6 percent against its Australian counterpart in the past month, on better prospects for the local economy. Australia's Reserve Bank is expected today to keep its benchmark interest rate unchanged at 2.5 percent while the official and HSBC readings of the China manufacturing PMI are expected to remain above the critical 50 level that demarks expansion from contraction.

"The China data may prove the greater influence on the Australian dollar if the Reserve Bank of Australia toes a familiar line," Bank of New Zealand senior market strategist Kymberly Martin said in a note. Any negative surprise on the China PMI data would boost the New Zealand dollar cross-rate with the Aussie dollar, but was likely to "take its toll" on the cross-rate between the New Zealand and US dollars.

Australia's Reserve Bank will probably maintain its neutral stance but keep alive the debate about whether monetary policy is doing enough to accommodate economic growth, said Martin.

The market currently prices a 35 percent chance of the RBA cutting rates by 25 basis point in the year ahead, she said.

"We agree the chances of a rate cut are higher than of a rate hike in the coming year," Martin said..

The RBA releases its statement at 4:30pm New Zealand time while the Chinese manufacturing PMI is due at 1pm and the Chinese HSBC final manufacturing PMI is published at 1:45pm.

The New Zealand dollar slipped to 63.91 euro cents from 64.13 cents yesterday, weakened to 51.13 British pence from 51.40 pence and was little changed at 88.66 yen from 88.64 yen. The trade-weighted index edged lower to 81.17 from 81.24 yesterday.

BusinessDesk.co.nz

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