Dollar little changed vs AU after RBA sees limited gains from weaker currency

The New Zealand dollar was little changed against its trans-Tasman counterpart after the Reserve Bank of Australia kept interest rates on hold and said it expects limited gains from a weaker Australian currency.

The kiwi traded at 93.60 Australian cents at 5pm in Wellington from 93.52 cents immediately before the release, and down from 93.75 cents yesterday. The local currency traded at 86.72 US cents from 86.73 cents at 8am, up from 86.55 cents yesterday.

The RBA kept the target cash rate at 2.5 percent, as expected, and kept its view that rates won't change while the central bank supports the economy. Governor Glenn Stevens said the Australian dollar was still high by historical standards, and that its decline over the past year won't "assist in achieving balanced growth in the economy" as much as previously. The Australian dollar decreased to 92.63 US cents at 5pm in Wellington from 92.78 cents before the release.

"For the time being they're on the fence well and truly as they wait for the economy to stabilise before they potentially make a decision further down the line," said Stuart Ive, senior client adviser at OMF in Wellington. "The kiwi/Aussie cross is elevated, and has the potential to edge even higher if everything stays as it is. The risk is to the downside longer-term."

Chinese manufacturing gauges gave a mixed picture of the world's second-biggest economy, with the official government measure showing industrial production expanded in March, while an HSBC/Markit Economics survey showed the sector shrank.

Traders are watching US employment figures this week for a gauge on the strength of the world's biggest economy, culminating in the government non-farm payrolls report on Friday, amid expectations the Federal Reserve will keep rolling back its quantitative easing programme and start raising interest rates next year.

The kiwi rose to a new six-and-a-half-year high of 89.67 yen in the course of the day, trading at 89.53 yen at 5pm in Wellington from 89.03 yen yesterday.

OMF's Ive said New Zealand's environment of rising interest rates was probably attracting investors seeking bigger returns, with the yield on 10-year government bonds at 4.62 percent, compared to 0.63 percent on the Japanese equivalent bond.

The local currency was unchanged at 52.04 British pence and 62.95 euro cents at 5pm in Wellington from yesterday. The trade-weighted index edged up to 80.94 from 80.86 yesterday.

(BusinessDesk)