Dollar slips to 3-week low vs. Australian dollar on leadership change, rates differential

The New Zealand dollar fell to a three-week low against its Australian counterpart after a government leadership change boosted optimism for economic growth across the Tasman, while speculation dimmed that the Reserve Bank of Australia will cut interest rates, unlike the Reserve Bank of New Zealand.

The kiwi dollar traded at 88.46 Australian cents at 5pm in Wellington, having earlier touched 88.30 cents, the lowest since Aug. 24, down from 89.08 cents yesterday.The kiwi was little changed at 63.10 US cents, giving up earlier gains, from 63.12 cents yesterday.

The Australian dollar initially got a boost from the news that Tony Abbott had been ousted as prime minister by rival Malcolm Turnbull, who is promising to rebuild economic confidence. But the kiwi has broken below its trading range of the past few months on expectation the RBA won't rush to cut its cash rate again from 2 percent, while the RBNZ has signalled it has at least one more quarter-point cut up its sleeve after cutting the official cash rate to 2.75 percent last week.

"The RBA is priced to ease, to cut rates - we don't think they will," said Imre Speizer, a strategist at Westpac Banking Corp. "The data out of Australia is ok and there was nothing in the RBA minutes today to suggest they're going to ease in the next few months. By contrast, the RBNZ is cutting rates."

He expects the kiwi to drop below 88 Australian cents in the next few days and to be "a couple of cents lower over the next few weeks."

Traders are awaiting the results of the GlobalDairyTrade auction overnight, which futures are indicating will show a 15 percent jump in prices, continuing the recovery seen in recent auctions. Speizer said traders have already bought the kiwi in anticipation of a strong result and they tend to be guided by the direction of milk powder futures as an indication of direction at the auction. An even bigger increase could lift the kiwi, just as a small gain could result in a selloff on the day.

Helping keep the kiwi dollar in a range, investors are still reluctant to take any strong position ahead of the US Federal Reserve's Open Market Committee meeting on Thursday in Washington, which may see the Fed lift interest rates from the near-zero policy it's run for almost seven years.

The kiwi slipped to 4.0138 yuan at 5pm in Wellington from 4.0206 yuan yesterday. The local currency rose to 55.71 euro cents from 55.65 cents yesterday, and was little changed at 40.87 British pence. It fell to 75.63 yen from 75.95 yen yesterday. The trade-weighted index fell to 68.28 from 68.44 yesterday.

The two-year swap rate rose 3 basis points to 2.69 percent, the five-year swaps rose 3 basis points to 3.06 percent and 10-year swaps rose 2 basis points to 3.58 percent.

(BusinessDesk)