Kiwi at seven-week $A low as market bets on RBNZ rate cut

BUSINESSDESK: The New Zealand dollar fell to a seven-week low versus its Australian counterpart as market bets on a local rate cut increased after yesterday's tepid inflation, while economic growth indicators improved across the Tasman.

The kiwi fell to 77.21 Australian cents from 77.53 cents yesterday, holding near its lowest level since May 28. The currency was little changed at 79.61 US cents at 5pm from 79.74 cents at 8am and down from 79.96 cents yesterday.

Traders are predicting a chance the Reserve Bank will cut the official cash rate over the coming year, with 18 points of cuts priced in.

That increased after government figures yesterday showed annual inflation slowed to a 13-year low, the same day the minutes for the Reserve Bank of Australia indicated policymakers across the Tasman were happy with current monetary policy settings.

"There's a bit more of a chance of a rate cut priced into New Zealand," said Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. "If Australia keeps cutting, the kiwi should head higher towards 78 Australian cents and then on to 80."

An Australian index of leading economic indicators compiled by Westpac Banking and the Melbourne Institute rose to its highest level since August, hinting at stronger growth across the Tasman.

Analysts will be watching next week's Australian inflation figure to see whether price increases in the tradeable sector slowed like in New Zealand.

Investors' appetite for higher yields was dented by Federal Reserve chairman Ben Bernanke's first day of testimony in front policymakers in Washington DC, when he indicated the central bank is putting more emphasis on unemployment but didn't offer any clues as to more stimulus.

Mr Bernanke now faces a second hearing.

Markets will also be waiting for the minutes to the Bank of England's latest policy meeting, where the board voted for a £50 billion expansion to its quantitative easing programme.

Weaker dairy prices at Fonterra Cooperative Group's GlobalDairyTrade auction also weighed on demand for the kiwi dollar, as trade-weighted prices fell 0.9%, led by a 6.4% decline in whole milk powder.

The kiwi fell to 62.91 yen from 63.06 yen yesterday, and the trade-weighted index declined to 72.15 from 72.40. It fell to 50.85 pence from 51.04 pence yesterday and decreased to 64.78 euro cents from 64.92 cents.