Kiwi falls against Aussie dollar after RBA rate cut

BUSINESSDESK: The kiwi fell versus the Australian dollar after the Reserve Bank of Australia cut its target cash rate by 25 basis points as deteriorating global sentiment keeps interest rates low.

The New Zealand dollar fell to 77.47 Australian cents at 5pm from 77.69 cents immediately before the announcement and 77.84 cents in late Asian trading yesterday, when the local market was closed for the Queen’s Birthday holiday.

The kiwi rose to 75.82 US cents from 75.13 cents.

The RBA cut is benchmark interest rate to 3.5% after slicing half a percentage point in April. That was in line with expectations with traders pricing in a 141 basis points cut to the cash rate over the next 12 months, according to the Overnight Swap Curve.

In New Zealand, traders are pricing in a 45 basis point cut. The cut further narrows the gap between New Zealand's unchanged interest rate at 2.5%.

"The cut had been fully priced in," said Dan Bell, currency strategist at HiFX. "I thought the RBA would have given the market what it wanted - it was starting to head towards 50 basis points."

Leaders of Group of Seven nations have agreed to discuss Europe’s debt crisis via an emergency conference call later today.

Spain is likely to be top of the agenda after the nation's fourth-biggest leader, Bankia SA, asked for 19 billion euro of government funding last week. That is more than the 15 billion euro government estimate to shore up the entire sector.

Euro leaders have also agreed to discuss closer banking co-operation after the European Commission called for a “banking union” to integrate tighter supervision of lenders and create a pool of EU funds to clean up banks with cross-border exposure.

Four out of the six analysts surveyed in a BusinessDesk poll today said the kiwi will finish the week higher, trading in a range of 74.50 US cents to 77.35 cents.

The government financial statements for the 10 months ended April 30 are set for release tomorrow. The March quarter's value of building work is also due, followed by the wholesale trade survey from Statistics New Zealand on Friday.

Treasury also confirmed its Budget forecasts in its latest monthly economic update publication, although it acknowledged downside risks were higher now that Greece's position in the euro had become more precarious.

The New Zealand dollar was little change on 60.52 euro cents from 60.57 cents in late Asian trading. The kiwi climbed to 49.23 British pence from 48.88 pence and rose to 59.40 yen from 58.71 yen.

The trade weighted index was little changed on 69.15.