Dollar pares decline against Aussie after RBA affirms rate stance

The New Zealand dollar pared losses against its trans-Tasman counterpart after the Reserve Bank of Australia affirmed its policy of keeping the cash rate unchanged while it waits to see whether the low interest rate environment will support the economic recovery.

The kiwi rose to 90.67 Australian cents at 5pm in Wellington from 93.37 cents immediately before the RBA release, and unchanged from 93.67 cents yesterday. The kiwi traded at 83.65 US cent at 5pm, unchanged from 8am, and up from 83.53 cents yesterday.

The RBA kept the cash rate at 2.5 percent, with governor Glenn Stevens saying "monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target" and that the most prudent course is to keep rates unchanged for a while. Strong Australian building consent figures earlier in the day had put pressure on the kiwi against its trans-Tasman partner, though that was erased by the RBA announcement.

The RBA "don't want to cut rates or be seen that they're looking to cut with a very buoyant housing market fuelling by lower interest rates," said Stuart Ive, senior client adviser at OMF in Wellington.

"Building consents were a lot better than expect and that put pressure on the kiwi/Aussie."

The RBA announcement comes a week before New Zealand's central bank reviews monetary policy at a meeting that's expected to see the first hike in a tightening cycle as governor Graeme Wheeler looks to head off the threat of future inflation.

OMF's Ive said the rate hike has been well-telegraphed and the market has probably fully priced it in.

Ongoing tensions in Ukraine, where Russia is threatening to annex the Crimean Peninsula, may stoke some risk aversion among investors after a sell-off on equity markets yesterday, though Asian stocks were up in afternoon trading. The kiwi traded at 30.55 Russian rubles at 5pm in Wellington from 30.14 rubles yesterday, having touched a record 30.65 rubles earlier in the day.

The local currency climbed to 85 yen at 5pm in Wellington from 84.69 yen yesterday, and rose to 60.93 euro cents from 60.62 cents. It gained to 50.23 British pence from 49.87 pence. The trade-weighted index gained to 78.62 from 78.39.

(BusinessDesk)

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