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Kiwi gains as business investment slows across Tasman

Investors are now nervous the Reserve Bank of Australia will cut interest rates next week.

Thu, 29 Nov 2012

The New Zealand dollar gained against its Australian counterpart after official figures show business investment is slowing in Australia, which may be a key factor in its central bank interest rate decision next week.

The kiwi rose to 78.75 Australian cents from 78.56 cents yesterday. It traded at 82.41 US cents at 5pm in Wellington from 82.34 cents at 8.30am, and up from 82.14 cents yesterday.

Australian capital spending advanced 2.8% from the second quarter, when it rose 3.4%, the Bureau of Statistics said in Sydney today. Still, signs of a slowing Australian resources boom have investors nervous the Reserve Bank of Australia will cut interest rates next week.

Traders are pricing a 68% chance the 3.25% target cash rate will be trimmed, according to the Overnight Index Swap curve.

New Zealand's central bank, which also meets next week, is being given a 14% chance of a cut to its 2.5% official cash rate, meaning Australia's yield advantage will probably narrow.

"The Aussie capex data was a bit mixed, but doesn't seem to have done anything to upset things," says Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney.

"The kiwi was lifting through the morning [against the Australian dollar] and since the capex data it has outperformed."

Risk-sensitive currencies got a lift from upbeat comments by US House of Representatives Speaker John Boehner, who said he was optimistic policymakers could "avert this crisis sooner rather than later", referring to the $US607 billion of automatic tax increases and spending cuts pencilled in for Jan. 1.

The kiwi might also have got a fillip from investors in the Fonterra's shareholder fund float. About 42% of the $525 million initial public offer went to international investors who will have to settle their accounts after getting their allocation yesterday.

The units are set to begin trading tomorrow.

The trade-weighted index advanced to 73.74 from 73.46.

The currency rose to 67.65 yen from 67.22 yen yesterday and increased to 51.45 British pence from 51.30 pence. It advanced to 63.63 euro cents from 63.50 cents yesterday.


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Kiwi gains as business investment slows across Tasman