Dollar holds after RBA hikes rates

Wednesday 7th October 2009

The New Zealand held above 73 US cents after the Reserve Bank of Australia became the first G-20 nation to begin tightening monetary policy and prices rose for a third straight month in Fonterra’s online milk powder auction.

The RBA boosted its target cash rate 25 basis points to 3.25% after New Zealand’s biggest trading partner dodged recession and its economy was buoyed by China’s recovery.

Australia is the first developed central bank to move away from “emergency” monetary stimulus, and the move stoked investors’ appetite for higher-yielding, or riskier, assets, boosting stocks in the US and Europe.

Underpinning support for the kiwi dollar was the 5.7% gain in milk prices to US$3,022 on Fonterra Cooperative Group’s globaDairyTrade website, adding to the theme that New Zealand’s economic outlook has improved.

“The surprise RBA rate hike and the Fonterra auction added further support to the kiwi,” said Mike Jones, strategist at Bank of New Zealand. “A little bit of selling against the Australian dollar will weigh on the New Zealand today.”

The kiwi was little changed at 73.32 US cents from 73.38 cents yesterday, and it slipped to 66.32 on the trade-weighted index, or TWI, a measure of the currency against five trading partners, from 66.41. It declined to 82.41 Australian cents from 82.70 cents yesterday, and was little changed at 49.80 euro cents from 49.83 cents. It dropped to 65.07 yen from 65.33 yen yesterday.

Jones said the currency may trade between 72.50 US cents and 73.70 cents today with little data to move it around. Some traders may cash in gains from the past couple of days, he said.

The US dollar continued to underperform yesterday as the RBA rate hike stoked global optimism the economic recovery has set in. Gold soared to a record high US$1,045 an ounce on the New York Mercantile Exchange as the weak greenback spurred demand for the precious metal as an alternative investment.

The kiwi hit a 25-year high of 46.30 pence after UK industrial production fell short of expectations, and declined 2.5% in August. The kiwi recently traded at 46.09 pence from 45.98 pence yesterday.

Businesswire.co.nz

Comments from our readers

No comments yet