NZ dollar rises to 5 mth high vs. Australian dollar on speculation RBA could cut rates early

Wednesday 28th March 2012

The New Zealand dollar rose to a five-month high against the Australian dollar on speculation the Reserve Bank of Australia could cut interest rates as soon as next week as the economy stumbles.

The New Zealand dollar rose to 78.38 Australian cents just before 8am, the highest since October from 78.12 cents yesterday at 5pm. The kiwi was little changed on 82.18 US cents from 82.17 cents.

Reserve Bank of Australia Governor Glenn Stevens held the target cash rate at 4.25 percent at the bank’s March meeting while warning that any material deterioration in the Australian economy would give it scope to cut rates further. Australia’s growth prospects have been dented by signs China’s economy, its biggest export market, is slowing as manufacturers ease output.

“The New Zealand dollar was weighed upon by a weaker Australian dollar,” said Alex Sinton, senior dealer at ANZ New Zealand. “We are comfortable the RBA will cut interest rates in May but they could cut rates next Tuesday.”

“The position of the New Zealand/Australian dollar could push up marginally from here throughout the day,” Sinton said.

The RBA is expected to slash its cash rate by 54 basis points over the next 12 months, according to the Overnight Index Swap curve, narrowing the gap with New Zealand’s record low official cash rate of 2.5 percent. New Zealand’s central bank is seen lifting the OCR by 27 basis points in the next 12 months.

The latest data out of the world’s largest economy, the US, showed consumers were more optimistic as a growing number planned to buy cars, homes and appliances. The Conference Board’s index was at 70.2 in March down from 71.6 a month earlier. That’s in line with the medium forecast in a Bloomberg survey. On the housing front, the rate of decline in prices eased underpinning hopes the US economy might catch up to the recovery elsewhere.

The S&P/Case-Shiller index of property values in 20 cities fell 3.8 percent from a year earlier, after dropping 4.1 percent in December. Prices were unchanged in January from December, the first time since July prices have not declined. In New Zealand, there is no significant data set for release today.

The New Zealand dollar rose to 61.63 euro cents from 61.52 cents and advanced to 68.28 yen from 68.08. The kiwi was little-changed on 51.49 British pence from 51.46 pence. The trade-weighted index increased to 73.09 from 72.96.

(BusinessDesk)

BusinessDesk.co.nz

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