Dollar gains vs Australian dollar after debt rating warning, RBA minutes

The New Zealand dollar gained against its Australian counterpart after Standard & Poor's warned that country could lose its AAA debt rating unless the A$49.9 billion budget deficit is reined in and after its central bank signalled interest rates would remain low.

The New Zealand dollar rose to 92.64 Australian cents from 92.42 cents at 8am and from 92.28 cents late yesterday. The kiwi was little changed from the start of the day at 86.13 US cents and down from 86.34 cents yesterday.

Minutes of the Reserve Bank of Australia's May 6 meeting showed the central bank deemed current low interest rates, with its benchmark cash rate at 2.5 percent, "was likely to be appropriate for some time yet." The minutes were released after a sovereign analyst at S&P was quoted in Australian media saying that nation's top credit rating could be reviewed unless the Abbott government made good on its proposed spending cuts, which are opposed by opposition parties.

"Australian dollar weakness might be attributable to S&P's warning shot last night that if they do not sort out the budget deficit they might lose their AAA rating," said Mark Johnson, a senior client adviser at OMF. "That's keeping pressure on that currency."

The kiwi traded at 62.80 euro cents, little changed from the start of the day and down from 63 cents yesterday.

Johnson said markets widely expect the European Central Bank to deliver a package of policy options at its June 5 meeting that would include interest rate cuts and possibly negative deposit rates and give investors less reason to hold the euro.

"Euro weakness would translate into US dollar strength and add to pressure on currencies like the Aussie and the kiwi," he said.

The kiwi traded at 87.49 yen from 87.42 yen at 8am in Wellington and down from 87.60 yen yesterday. It was little changed at 51.25 British pence. The trade weighted index was little changed at 80.20.

(BusinessDesk)

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