Kiwi may rise against Australian dollar on RBA governor’s speech

The New Zealand dollar may extend this year's 10 percent gain against the Australian dollar should Reserve Bank of Australia governor Glenn Stevens today affirm that a slowing economy justifies further interest rate cuts.

The kiwi recently traded at 87.20 Australian cents, little changed from 87.27 cents at the 5pm market close in Wellington yesterday. The local currency weakened to 80.31 US cents, from 80.78 cents yesterday.

The New Zealand dollar has surged against its Australian counterpart this year, hitting a 4.5-year high of 87.74 cents last week, as traders expect Mr Stevens to continue cutting interest rates to spur the economy as mining slows.

Meanwhile in New Zealand, a reviving local economy is expected to push interest rates up.

"I wouldn't be surprised at all if he endorses the current market pricing," says Sam Tuck, senior manager FX at ANZ New Zealand. "Kiwi/Aussie might be supported higher."

Should the Kiwi appreciate further against the Aussie, it would be an opportunity to buy Australian dollars as divergent interest rate paths are already priced in, he says.

Traders are pricing in a 79 percent chance of an interest rate cut at the next Reserve Bank of Australia meeting on August 6, according to the Overnight Index Swap Curve. Australia's benchmark rate is currently 2.75 percent.

Traders see a zero chance that interest rates will change at the next Reserve Bank of New Zealand meeting on September 12. However, they are pricing in a 61 percent chance of a hike in the next year, according to the Overnight Swap Curve. New Zealand's rate is currently 2.5 percent.

Last year, the Australian governor's annual speech to the Anika Foundation was titled "The Lucky Country" and the market would react more should he continue to be optimistic in the same vein this year, Mr Tuck says. Today's speech in Sydney is expected at about 3pm local time.

In New Zealand today, Statistics NZ publishes the latest data on building consents.

The kiwi weakened to 60.49 euro cents from 60.83 yesterday and dipped to 52.25 British pence from 52.51 pence. It fell to 78.52 yen from 79.02 yen and the trade-weighted index slipped to 75.55 from 75.93.

(BusinessDesk)