Dollar falls vs Aust dollar after RBA makes opportune rate cut

The New Zealand dollar fell against its trans-Tasman counterpart after the Reserve Bank of Australia opportunistically cut interest rates, which traders interpreted as meaning there was a high hurdle for future easing.

The kiwi fell to 95.45 Australian cents at 5pm in Wellington from 96.07 cents immediately before the announcement, and 96.15 cents yesterday. It increased to 75.44 US cents from 75.25 cents yesterday.

The RBA cut its cash rate a quarter-point to a record-low 2 percent, after "the board judged that the inflation outlook provided the opportunity for monetary policy to be eased further," governor Glenn Stevens said in a statement. Because it was heralded as being an opportune cut, investors saw that as taking further cuts off the table, which helped lift the Australian dollar to 78.94 US cents at 5pm in Wellington from 78.50 cents immediately before the review.

"It was seen as 'one and done' - a further hurdle to cut is now another opportune time," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "The New Zealand dollar will remain under pressure on the crosses."

New Zealand's central bank has adopted an easing bias to monetary policy, meaning there's a chance of a rate cut, which has put the kiwi dollar under pressure in recent weeks.

The upcoming GlobalDairyTrade auction is expected to keep that pressure in place, with futures pricing indicating a likely decline in the average price at the overnight event. Dairy is New Zealand's biggest export commodity.

Traders are also watching the ISM non-manufacturing survey to gauge any wage pressures in the US economy ahead of non-farm payrolls on Friday in Washington.

New Zealand's employment data tomorrow will also be watched to see if wage inflation is remaining tame.

The kiwi dollar rose to 67.79 euro cents at 5pm in Wellington from 67.22 cents yesterday, and advanced to 49.84 British pence from 49.65 pence. It increased to 90.58 yen from 90.35 yen. The trade-weighted index increased to 78.14 from 78 yesterday.

(BusinessDesk)