NZ dollar falls vs. Aust dollar as RBA shrugs off low inflation, global jitters

Tuesday 1st March 2016

The New Zealand dollar fell against its trans-Tasman counterpart after the Reserve Bank of Australia kept interest rates on hold, shrugging off low inflation and increasing fears about the strength of the global economy.

The kiwi declined to 94.45 Australian cents at 5pm in Wellington from 92.71 cents immediately before the release. It was up from 92.12 cents yesterday. The local currency increased to 65.98 US cents from 65.82 cents at 8am and 65.71 cents yesterday.

The RBA kept the target cash rate at 2 percent, saying inflation was "quite low" and likely to remain so for the next year or two, while global economic growth was slower than previously expected. Still, governor Glenn Stevens said Australia's labour market has improved, the pace of lending to businesses had picked up, and the exchange rate was "adjusting to the evolving economic outlook." Against that backdrop, the RBA's board decided current settings were still appropriate, while acknowledging low inflation provided scope to cut rates.

"The RBA decision was a little bit more positive than the market was expecting," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "The kiwi/Aussie is going down on that because it was a fairly unchanged statement giving a stable assessment of the Australian economy."

New Zealand government figures today showed the country's terms of trade fell 2 percent in the fourth quarter, which ANZ's Tuck said reaffirmed the bank's view the kiwi dollar will keep falling.

Two-year swaps decreased one basis point to 2.37 percent and 10-year swaps fell three basis points to 3.02 percent.

The kiwi increased to 4.3158 Chinese yuan from 4.3022 yuan yesterday after Chinese manufacturing gauges were weaker than expected and following on from the People's Bank of China's move to lower the reserve requirement ratio for banks.

Traders will be watching the upcoming GlobalDairyTrade auction, which futures pricing predicts will rise at the event, and manufacturing surveys in the US and Europe.

The kiwi gained to 60.65 euro cents from 60.14 yesterday, and was little changed at 47.35 British pence from 47.42 pence. It fell to 74.25 yen from 74.46 yen, and the trade-weighted index edged up to 72 from 71.82 yesterday.

BusinessDesk.co.nz

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