Dollar rises against Aust on speculation RBA will cut interest rates next week

The New Zealand dollar rose against the Australian dollar after New Zealand's Reserve Bank kept interest rates on hold yesterday, as speculation grew that the Reserve Bank of Australia will cut interest rates at its meeting next week.

The kiwi jumped to 96.40 Australian cents at 8am in Wellington, from 95.22 cents at 5pm yesterday. The local currency edged up to 76.31 US cents from 76.17 cents yesterday.

The Australian dollar weakened amid growing speculation that the RBA will cut its benchmark interest rate to a record low 2 percent at its Tuesday meeting. In a report from Australia cited by traders overnight, The Age newspaper's economics editor Peter Martin said concern about a deteriorating economic outlook and a resurgent Australian dollar will force the RBA to cut interest rates. Traders are pricing in a 62 percent chance of an interest rate cut at the meeting, according to the Overnight Index Swap Curve.

"After the Reserve Bank of New Zealand announcement, markets abruptly switched attention to Tuesday's RBA meeting, increasing the odds of a May cut and selling Australian dollar crosses," ANZ Bank New Zealand senior rates strategist David Croy and senior FX strategist Sam Tuck said in a note. "We also expect a cut, as do 24 of 28 economists surveyed by Bloomberg."

The kiwi will probably trade between 95.60 Australian cents and 97 cents today, ANZ said.

In New Zealand today, state valuer Quotable Value will publish its housing data for April at midday. Finance Minister Bill English will give a pre-budget speech to a lunchtime meeting at the Wellington Employers' Chamber of Commerce.

In Australia, data is released on manufacturing, house prices, producer prices and commodity prices.

Traders will also be eyeing today's release of China's April performance of manufacturing index. China is the largest trading partner for both New Zealand and Australia.

The New Zealand dollar slipped to 67.95 euro cents from 68.57 cents yesterday, gained to 49.70 British pence from 49.38 pence and advanced to 91.10 yen from 90.35 yen. The trade-weighted index gained to 78.71 from 78.41 yesterday.

(BusinessDesk)