Dollar falls to 8-week low vs Aust after RBA removes easing bias

The New Zealand dollar fell to an eight-week low against the Aussie as traders bet the Reserve Bank of Australia is finished its easing cycle after it reduced the country's benchmark interest rate to a record low 2 percent yesterday.

The kiwi touched 94.90 Australian cents, and was trading at 95.09 cents at 8am in Wellington, from 95.45 cents at 5pm yesterday and 96.05 cents immediately before the RBA's 4:30pm statement. The local currency edged up to 75.54 US cents from 75.45 cents yesterday after a report showed the US trade deficit widened.

The Aussie strengthened after investors reduced their expectations for further Australian interest rate cuts this year. The RBA statement omitted a sentence that further action could be necessary, signalling it has no imminent plans to reduce rates. Traders are pricing in just 11 basis points of cuts over the coming year, according to the Overnight Index Swap Curve. RBA governor Glenn Stevens also noted that the Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies.

"Even though the RBA cut, the RBA removed an explicit easing bias from its statement, and as a result of the statement the markets have reduced the odds for another RBA cut this year," said Peter Cavanaugh, client adviser at Bancorp Treasury Services. "The RBA has a softer tone towards the AUD in the statement. That all combined gave the Aussie dollar a boost and the kiwi lagged and that pulled the kiwi/Aussie down to the 95 area where it is encountering considerable buying support."

The New Zealand dollar didn't react overnight to a decline in dairy prices on the GlobalDairyTrade platform, which had been expected. The GDT average winning price fell 3.5 percent to US$2,515, down from US$2,620 at the previous auction three weeks ago.

In New Zealand today, traders will be focused on first quarter employment data scheduled for release at 10:45am. Economists in a Reuters poll expect the unemployment rate fell to 5.5 percent from 5.7 percent as growth in labour costs slowed to 0.4 percent, from a 0.5 percent pace in the previous quarter.

The HSBC China Services Purchasing Managers' Index is due out this afternoon. Federal Reserve chair Janet Yellen is scheduled to give a speech to the Institute for New Economic Thinking Conference on Finance and Society in Washington DC today.

The New Zealand dollar slipped to 49.79 British pence from 49.90 pence yesterday ahead of the UK general election tomorrow. The local currency weakened to 67.49 euro cents from 67.80 cents yesterday and was little changed at 90.53 yen from 90.58 yen. The trade-weighted index slipped to 78.09 from 78.13 yesterday.

(BusinessDesk)