Dollar stays low as RBA holds rates unchanged

By Paul McBeth

Wednesday 4th March 2009

The New Zealand dollar held below 50 US cents after the Australian central bank kept its benchmark interest rate unchanged which may temper the New Zealand rate decision next week.

The Reserve Bank of Australia kept its key rate unchanged at 3.25%, having slashed the rate by 400 basis points since it began easing monetary policy in September.

The Reserve Bank of New Zealand will review the official cash rate next week, and is expected to cut the OCR by 50 basis points to 3%, according to a Reuters survey. Helping underpin the kiwi, the slide in stocks on Wall Street slowed overnight.

"Risk aversion is still not at the highs of recent months," said Danica Hampton, currency strategist at Bank of New Zealand. "The tempering of RBNZ easing expectations lent a bit of support to the New Zealand dollar last night."

The kiwi fell to 49.74 US cents from 49.89 cents yesterday, and rose to 48.79 yen from 48.78 yen. It slumped to 77.30 Australian cents from 77.51 cents, and slipped to 39.43 euro cents from 39.44 cents.

Hampton said the currency may find support between 49.10 US cents and 49.20 cents on the downside, and between 50 cents and 50.20 cents on the topside.

Australian fourth-quarter gross domestic product is forecast to grow 0.1% quarter on quarter, according to a Reuters survey. The RBA has indicated that if growth remains soft and unemployment starts rising again, it will resume rate cuts.

The price of milk powder rose for the first time on Fonterra Cooperative Group's controversial online auction site, GlobalDairyTrade. The 16.6% increase to US$2,158 per metric ton will lend some strength to the currency as farmers receive more money for their goods. Dairy products accounted for 21.4% of New Zealand's $43 billion worth of exports in the 12 months to January 31.

The ANZ January commodity price index out later today will give a good indication to where the prices of raw materials produced in New Zealand are heading.

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