Kiwi falls as Aussie unemployment drops below 5%

BUSINESSDESK: The New Zealand dollar fell against its Australian counterpart after the unemployment rate across the Tasman dropped below 5% for the first time in a year.

The kiwi fell to 77.75 Australian cents at 5pm from 78.01 cents yesterday, and has shed 2.4% since its peak on April 9.

It rose to 78.60 US cents from 78.46 cents at 8am and was up from 78.43 cents yesterday.

The trade-weighted index was little changed at 70.54 from 70.45.

Australia's unemployment rate fell to 4.9% last month, according to the Statistics Bureau.

That was lower than the 5.3% rate forecast by economists in a Bloomberg survey, and stoked demand for investment in the so-called Lucky Country.

The Australian dollar climbed as much as 0.6% after the release, and recently traded at $US1.0102.

Reserve Bank governor Alan Bollard warned recently the kiwi's strength may force him to cut if it stays elevated without any fundamental support for doing so.

The prospect of a slower track of interest rate increases in New Zealand has dimmed the attraction of our dollar compared to Australia's currency.

"Now Dr Bollard opened the door to easing, markets are taking advantage of that and keeping rate cuts priced in in the kiwi," said Imre Speizer, market strategist at Westpac Banking.

"For the last couple of weeks, the kiwi has underperformed" the Australian dollar," he said.

Traders are betting the Reserve Bank will cut the 2.5% official cash rate 26 basis points in the coming year, according to the Overnight Index Swap curve.

Mr Speizer said the kiwi may bounce back up to 79 US cents after its sharp sell-off this week as markets reassess the global environment and watch Greek politicians bargaining to form a coalition government.

The Greek Parliament was hung after the weekend election, when the two major parties, both of which signed off on the nation's major austerity drive, failed to secure enough votes to govern and the neo-Nazi Golden Dawn party won a 6.9% share.

Traders will also keep an eye on Spain after the government nationalised Bankia SA, the nation's third-biggest lender.

The yield on Spain's two-year government bonds jumped 26 basis points to 3.96%, while the yield on the benchmark 10-year notes rose 2 basis points to 6.09%.

The kiwi rose to 60.69 euro cents from 60.47 cents yesterday, and rose to 48.71 pence from 48.61 pence.

It traded at 62.62 yen at 5pm from 62.56 yen yesterday.