Dollar falls vs. greenback, Aust dollar after wage inflation slows

The New Zealand dollar fell to a three-week low against the greenback and a three-month low versus its Australian counterpart after local wage growth slowed in the March quarter, raising the prospect of a rate cut by the Reserve Bank.

The kiwi fell to 74.80 US cents at 5pm in Wellington from 75.54 cents at 8am and 75.45 cents yesterday. It fell as low as 93.82 Australian cents, and was trading at 93.88 cents at 5pm from 95.45 cents yesterday.

Government figures today showed annual wage inflation in the private sector slowed to a 0.3 percent pace in the three months ended March 31 and was unchanged on an annual basis at a 1.8 percent rate. Economists had been expecting wages to increase at a faster pace in the period, and the Reserve Bank last week put wages firmly in focus when assessing its outlook for the nation's inflationary pressures.

"In itself, it's not a trigger, but it adds to risks they may be forced to cut rates," said Raiko Shareef, currency strategist at Bank of New Zealand in Wellington. "The fact it increases the chance a cut might happen means it's an appropriate reaction for the kiwi to go lower."

Shareef said the unwinding of kiwi/Australian dollar positions might have exaggerated the decline after the Reserve Bank of Australia yesterday cut its cash rate a quarter point to 2 percent, as expected, while dropping any bias for another rate cut.

"For the past three months it's been pressing towards parity, and probably unfairly so on a speculative basis," Shareef said. "People are getting out of that trade."

Prices for dairy products fell at the latest GlobalDairyTrade auction, though the local currency didn't react to the news as the futures market had been predicting a decline.

The kiwi fell to 4.6396 Chinese yuan at 5pm in Wellington from 4.6895 yuan yesterday after the HSBC/Markit China services purchasing managers' index rose to a four-month high in April.

The kiwi dropped to 49.17 British pence from 49.90 pence yesterday ahead of the UK general election, and sank to 66.61 euro cents from 67.80 cents yesterday. It fell to 89.72 yen from 90.58 yen. The trade-weighted index declined to 77.13 from 78.13 yesterday, its lowest level since March 18.

New Zealand's two-year swap rate fell to 3.435 at 5pm in Wellington from 3.55 yesterday, while the 10-year swap rate rose to 3.948 from 3.89, the highest level since Jan. 9.

(BusinessDesk)