NZ dollar weaker against Aussie after RBA stays on message

Tuesday 1st August 2017

The New Zealand dollar lost ground against the Australian dollar when the Reserve Bank of Australia kept rates on hold at 1.5 percent and said its forecasts for the Australian economy are largely unchanged despite weaker-than-expected inflation in the second quarter.

The kiwi was trading at 93.48 Australian cents at 5pm from 93.86 Australian cents at 8 am and from 94.06 cents yesterday. The kiwi was little changed at 75.04 US cents from 75.06 cents yesterday, having reached a two-year high of 75.58 cents last week.

The RBA said recent inflation data - which showed consumer prices were close to flat in the second quarter and core inflation was well below the central bank's target band - was broadly as expected and was expected to pick up gradually as the economy strengthened. It did note, however, that the Aussie dollar had gained strength recently - largely because of US dollar weakness and "an appreciating exchange rate would be expected to result in a slower pickup in economic activity and inflation than currently forecast."

It's jawboning, however, had no lasting impact. The Australian dollar slipped to around 80.05 US cents on the remarks from 80.20 US cents, before rebounding, in what HIFX said was "somewhat of a non-event" given it was widely expected.

Tim Kelleher, head of institutional foreign exchange sales at ASB Bank, said markets overlooked news that Jacinda Ardern has replaced Andrew Little as the new leader of the opposition Labour Party. "There was no reaction to that at all," said Kelleher.

He said tomorrow's domestic jobs data will be watched for direction. ASB is forecasting an unemployment rate of 4.8 percent while the median in a Bloomberg poll is for 4.9 percent.

The overnight GlobalDairyTrade auction could also have an impact on the kiwi, with whole milk powder prices tipped to rise between 4 percent and 6 percent, said Kelleher.

The kiwi continued to struggle against the euro, trading at 63.43 versus 63.95 cents late yesterday after a slight dip in European Union unemployment and stronger inflation added to the case for the European Central Bank to begin dialing back its quantitative easing programme.

The kiwi traded at 82.69 yen from 82.96 yen and declined to 56.77 British pence from 57.16 pence. It traded at 5.0409 yuan from 5.0495 yuan.

The trade-weighted index slipped to 78.72 from 78.97.

New Zealand's two-year swap rate was unchanged at 2.21 percent while the 10-year swaps rose 2 basis point to 3.30 percent.

(BusinessDesk)

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