Kiwi falls as widening Australian trade deficit saps currency appetite
(BusinessDesk) The New Zealand dollar followed its Australian counterpart lower as a widening trade deficit across the Tasman added to growing pessimism about the prospects for Australasia.
The kiwi fell to 82.23 US cents at 5pm in Wellington from 82.62 cents at 8am and 82.80 cents yesterday. The trade-weighted index declined to 73.42 from 73.72.
Australia's trade deficit widened to $A2.03 billion in August from a revised $A1.53 billion shortfall between exports and imports a month earlier, the Bureau of Statistics says.
That was worse than the expected $A685 million deficit, and added to the negative sentiment about Australia's economy after the Reserve Bank of Australia cut the target cash rate a quarter-point to 3.25% yesterday.
The Australian dollar has shed 1.4% since the RBA announced its cut, trading at $US1.0222 at 5pm in Wellington.
"The Aussie's had a bad day, continuing lower, but there's a big technical level at US$1.015 and I suspect there will be buyers at some stage," says Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "The kiwi's definitely weak on the day."
The kiwi held gains against the Australian dollar, trading at 80.40 Australian cents at 5pm in Wellington from 79.85 cents yesterday.
The kiwi's appeal has grown with markets pricing in 95 basis points of further rate cuts by the RBA over the next 12 months, according to the Overnight Index Swap curve, and eroding Australia's yield advantage.
The yield on New Zealand's benchmark 10-year government bond was 3.398% compared to 2.928% for the Australian equivalent.
Investors will be looking at ADP employment figures in the US during Northern Hemisphere trading ahead of non-farm payrolls data on Friday.
The Federal Reserve has made the employment its key plank in assessing its quantitative easing programme as it looks to revive a stagnant jobs market to spur growth in the world's biggest economy.
The kiwi fell to 63.73 euro cents from 64.18 cents yesterday and declined to 64.30 yen from 64.64 yen. It slid to 50.99 British pence from 51.29 pence.