NZ dollar holds near 3-month low vs Aussie as RBA looks towards higher rates

Tuesday 15th May 2018

The New Zealand dollar held near a three-month low against its Australian counterpart after minutes to the last Reserve Bank of Australia policy review showed the next move in interest rates is expected to be higher, putting it at odds with a more ambivalent RBNZ.

The kiwi traded at 91.77 Australian cents as at 5pm in Wellington from 91.80 cents at 8am, down from 92.15 cents yesterday. It was the lowest since early February. The kiwi dropped to 68.92 US cents from 69.61 cents late yesterday. That's the first dip below 69 since mid-December as the greenback remained in favour.

Australia's central bank signalled interest rates will remain at record lows for some time, however, "in the current circumstances, members agreed that it was more likely that the next move in the cash rate would be up, rather than down," according to the minutes from the May 1 monetary policy review. This contrasts with the Reserve Bank of New Zealand that said "the direction of our next move is equally balanced, up or down. Only time and events will tell."

The kiwi-Aussie cross is "still sliding" on the "divergence between the central banks," said Ross Weston, a senior trader at Kiwibank. That was exacerbated by a stronger relief rally for the Aussie now that fears of a global trade war have abated given that those concerns weighed more heavily on the Australian dollar, he said.

Looking ahead, Weston said Thursday's budget should be positive for the New Zealand dollar as the government's planned fiscal spend "isn't something that suggests the RBNZ should be cutting rates."

The trade-weighted index fell to 72.11 from 72.62.

The kiwi fell to 57.84 euro cents from 58.21 cents yesterday and dropped to 4.3742 yuan from 4.4122 yuan. It fell to 50.89 British pence from 51.32 pence and declined to 75.74 yen from 76.14 yen.

New Zealand's two-year swap rate rose 1 basis point to 2.19 percent while 10-year swaps lifted 3 basis points to 3.16 percent.

(BusinessDesk)

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