The New Zealand dollar fell to a two-month low against its trans-Tasman counterpart after the Reserve Bank of Australia moved away from further rate cuts after inflation came in higher than expected and Australian consumer spending shows signs of life.
The kiwi fell to 91.45 Australian cents at 5pm in Wellington from 92.33 cents immediately before the release, and down from 92.70 cents yesterday. The local currency traded at 80.98 US cents at 5pm from 80.92 cents at 8am, down from 81.16 cents yesterday.
The RBA kept the cash rate at 2.5 percent, while dropping its reference to adjusting policy to foster growth. Governor Glenn Stevens said inflation in the December quarter was faster than anticipated, and will likely be ahead of the bank's forecasts, while remaining in the target band. "On present indications, the most prudent course is likely to be a period of stability in interest rates," Stevens said.
"The RBA dropped its easing bias back to neutral and gave a glimmer it might even think about raising rates if certain conditions are met," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "The kiwi's going to underperform the Aussie on the cross."
The kiwi had been near eight-year highs against its Australian counterpart with the possibility of another rate cut by the RBA contrasting the New Zealand Reserve Bank's next move, which will be higher. The yield on New Zealand's 10-year government bond was 4.69 percent at 5pm in Wellington, 45 basis points above its Australian counterpart.
Westpac's Speizer said the kiwi has strong support at 91.50 Australian cents, and if it breaks below that level could fall to 89 cents.
New Zealand commodity prices rose to a new record, according to ANZ New Zealand Bank data today, adding to the upbeat picture for local exporters who are experiencing 40-year high terms of trade.
Global investors have been nervous about risk-sensitive assets in recent weeks with some emerging markets coming under pressure as the Federal Reserve starts slowing its stimulus programme, and traders repatriate funds back to the world's biggest economy.
The kiwi dollar dropped to 81.91 yen at 5pm in Wellington from 83.08 yen yesterday, and declined to 59.93 euro cents from 60.17 cents. It rose to 49.64 British pence from 49.39 pence. The trade-weighted index fell to 76.60 from 77.09.