NZ dollar falls vs. Australian dollar after RBA less pessimistic on global outlook

Tuesday 2nd February 2016

The New Zealand dollar fell against its trans-Tasman counterpart after the Reserve Bank of Australia was less pessimistic about the global outlook than some traders had expected.

The kiwi fell to 91.95 Australian cents from 92.14 cents immediately before the RBA announcement, though up from 91.61 cents yesterday. The local currency gained to 65.22 US cents from 65.12 cents at 8am and 64.74 cents yesterday as weaker than expected US data stoked speculation the Federal Reserve won't hike rates as aggressively as previously flagged.

The RBA kept the target cash rate at 2 percent, saying inflation remained low and warranted loose monetary policy, but was still close to target while there were reasonable prospects for economic growth. Governor Glenn Stevens said the Australian dollar had continued to follow global commodity prices lower, and while global financial markets had become more volatile, low interest rates meant high-quality borrowers faced cheap funding costs.

Traders have been looking for signs the RBA would adopt a similar easing bias as the Reserve Bank of New Zealand as Chinese manufacturing continues to shrink and as other major central banks continue to operate extraordinarily easy monetary conditions.

"The statement didn't meet market expectations, and they seemed to look through the weaker global activity and global volatility," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "That keeps a ceiling on the kiwi/Aussie."

Investors will be watching the GlobalDairyTrade auction on Tuesday in the US which is expected to show a decline, with NZX futures pricing indicating a decline of between 5-and-10 percent.

The ANZ commodity price index today showed the New Zealand dollar's weakness over the past year had absorbed much of the decline in commodity prices over the past year, falling 1.6 percent in kiwi terms compared to a 15 percent slump in global terms.

RBNZ governor Graeme Wheeler will deliver his first public speech of the year tomorrow, which investors will be watching for a steer on future interest rate movements, while December quarter employment data is also scheduled for tomorrow.

New Zealand's two-year swap increased two basis points to 2.6 percent at 5pm in Wellington, and 10-year swaps gained three basis points to 3.39 percent.

The kiwi advanced to 4.2893 Chinese yuan from 4.2589 yuan yesterday, and increased to 78.48 yen from 78.48 yen. It was little changed at 59.78 euro cents from 59.66 cents yesterday, and fell to 45.23 British pence from 45.41 pence. The trade-weighted index rose to 71.58 from 71.19 yesterday.

BusinessDesk.co.nz

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