Dollar touches fresh 4-month high vs. AU$, breaks through key support level

The New Zealand dollar touched a fresh four-month high against the Australian dollar after the Aussie broke through a key support level amid speculation the country's central bank may cut interest rates to bolster the economy.

The kiwi touched 92.40 Australian cents, and was trading at 92.15 cents at 8am in Wellington, from 91.51 cents at 5pm yesterday. The local currency advanced to 78.75 US cents from 78.15 cents yesterday after a slew of disappointing US data weighed on the greenback.

The Aussie fell below a key support level of 85 US cents for the first time since July 2010, touching a low of 84.77 cents, and its decline was hastened by technical selling after it broke below the 200 day moving average. The Australian currency has been under pressure this week, declining sharply after Reserve Bank of Australia deputy governor Philip Lowe warned that the domestic currency remains elevated and a lower exchange rate would be helpful for the economy, adding that low interest rates have been effective and further rate cuts can't be ruled out if the bank needed to again.

"Lowe intimated that the central bank may consider further easing actions if the economy does not pick up pace early next year," Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management, said in a note. "The fall in Aussie however was hastened by momentum selling as the pair broke one key technical support level after another finally crashing through the 8500 (US cents) barrier.

"The events of the past few days have dislodged much of the speculative capital from the currency and helped to accelerate the selling," Schlossberg said. "The decline in the Aussie will be seen as welcome news by the RBA which has been trying to talk the unit down for the better part of this year. The RBA would prefer to see the exchange rate below the 8500 barrier and ideally closer to 8000 in order to adjust Australia's terms of trade and help the ailing resource sector."

Today, the focus will be on the release of Australian third quarter capital expenditure data, where the RBA will be looking to see whether other sectors are filling the void left by mining, as well as estimates for 2014/2015 capital expenditure.

The data may weigh on expectations for Australian interest rates, where traders are now pricing in a 60 percent chance of a 25 basis points cut by the second half of next year, Kymberly Martin, senior market strategist at Bank of New Zealand, said in a note.

"The Australian dollar looks technically vulnerable, with little support above the 83.20 US cent level," Martin said.

In New Zealand today, traders will be eyeing the release of October trade data where lower dairy prices are expected to contribute to a monthly deficit of $650 million.

At 3pm, the Reserve Bank of New Zealand releases its net currency sales data, which will be watched to see if the bank has been active in the currency markets last month.

Tonight, the US has a public holiday for Thanksgiving Day, while elsewhere releases include German unemployment, retail sales and inflation data along with a Eurozone business sentiment indicator.

The New Zealand dollar rose to 62.93 euro cents from 62.66 cents after European Central Bank vice president Vitor Constancio signalled the bank will next quarter consider buying sovereign debt in relation to the size of each euro member's economy if current stimulus proves insufficient. He noted that the ECB would consider buying sovereign debt on the secondary market which in turn would influence inflation expectations and exchange rates.

The local currency advanced to 49.84 British pence from 49.76 pence yesterday and gained to 92.74 yen from 92.10 yen. The trade-weighted index advanced to 78.50 from 78 yesterday.

(BusinessDesk)