Kiwi gains as RBA minutes downplay rate cuts

BUSINESSDESK: The New Zealand dollar rose after minutes for the Reserve Bank of Australia's last meeting played down the chance of further rate cuts and as traders await Federal Reserve chairman Ben Bernanke's testimony to policymakers.

The kiwi rose to 79.96 US cents at 5pm from 79.69 cents at 8am and 79.51 cents yesterday. The trade-weighted index increased to 72.40 from 72.31.

The board of Australia's central bank see it as appropriate for interest rates to be "a little below average given evidence of slower global growth and the low rate of inflation in Australia", according to the minutes for the July 3 meeting.

The Australian dollar rose to $US1.03 from $US1.0253 immediately before the release as traders pulled back their bets on lower interest rates.

"A lot of market participants were pricing in additional rate cuts this year," said Dan Bell, currency strategist at HiFX in Auckland. "That boosted the Aussie and the kiwi gained with it". 

Currency traders largely ignored New Zealand's slowest annual inflation reading since December 1999, with government figures showing consumer prices rose 0.3% in the three months ended June 30, short of the 0.5% pace forecast by a Reuters survey of economists.

New Zealand's two-year swap fell to a month-low after the local inflation data but rallied after the release of the RBA minutes and was up 3 basis points to 2.63% at the close of local trading. The kiwi fell to 77.53 Australian cents from 77.74 cents yesterday.

"It's clear how little impact local data has on the New Zealand at the moment – it's all about US monetary policy," Mr Bell said.

The Fed's Mr Bernanke will testify before US policymakers tomorrow and on Thursday in Washington DC, and markets are split as to whether he will drop a hint for further quantitative easing.

Mr Bell said the kiwi may trade between 79 US cents and 80.80 cents in the very short term.

The kiwi was little changed at 51.04 British pence from 51.07 pence yesterday, and traded at 65 euro cents at 5pm from 64.96 cents. It gained to 63.06 yen from 62.89 yen.