NZ dollar holds near 6 mth high vs. Australian dollar

Friday 30th March 2012

The New Zealand dollar held near a six-month high against the Australian dollar on speculation the nation’s biggest export markets, China and Australia will ease monetary policy in the coming days as economic growth wanes.

The New Zealand dollar traded at 78.63 Australian cents at 8am from 78.76 cents yesterday at 5pm. It reached 78.98 cents yesterday, the highest since Oct. 10. The kiwi fell to 81.52 US cents from 81.64 cents and the trade-weighted index decreased to 72.67 from 72.78.

Speculation is growing that China will trim the ratio of cash that its lenders must keep in reserve to encourage credit growth amid signs the world’s fastest-growing major economy is losing steam.

China, New Zealand’s second-biggest export market, is set to release manufacturing data this weekend, which may show factories are running slower. Australia, New Zealand’s biggest market, may cut interest rates as soon as next week.

“Rumours were running round last week and are gathering strength that China may cut its reserve bank ratio,” said Michael Hollows, currency strategist at HiFX. “I don’t think you would pre-empt either cut but the market is starting to bet on movements soon rather than later.”

The RBA is expected to slash its cash rate by 73 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 26 basis points in the next 12 months.

China’s is set to release its official performance of manufacturing on Sunday. HSBC’s flash manufacturing, the unofficial reading of China’s PMI, showed the world’s second-biggest economy may be in for its fifth monthly contraction.

Growth in the US, the world’s largest economy, was confirmed at a 3 percent annual pace in the three months ended Dec.31. That followed a 1.8 percent gain in the previous quarter, according to Commerce Department figures. The US consumer sentiment survey will be released on Friday.

The New Zealand was little changed at 61.37 euro cents from 61.29 cents yesterday as European Union finance ministers prepare to meet in Copenhagen on Friday. It is expected they will decide on plans to shore up the region’s 500 billion euro rescue fund.

Bloomberg is reporting the ministers have already neared agreement to increase the limit on rescue funds to 940 billion euros until mid-2013 to help bolster both Spain and Italy and prevent them falling further into recession.

In New Zealand, building consents for February are set for release this morning and follows the National Bank Business Outlook yesterday which showed the construction industry led a pick-up in confidence.

The New Zealand dollar fell to 51.17 British pence from 51.35 pence and slipped to 67.27 yen from 67.51 yen.

BusinessDesk.co.nz

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