Kiwi poised for biggest weekly slide against Aussie since May

BUSINESSDESK: The New Zealand dollar is heading for a 0.9% drop against its Australian counterpart this week, the sharpest weekly decline in five months, after benign local inflation stoked bets New Zealand's central bank may cut rates to revive a slowing economy.

Better data across the Tasman has seen markets reduce expectations for lower rates in Australia.

The kiwi was little changed at 79 Australian cents at 5pm in Wellington from 79.04 cents yesterday. It fell to 81.89 US cents from 82.09 cents yesterday, and is poised for a 0.3 weekly gain.

Government figures this week showed New Zealand's consumer prices rose at their slowest pace in 13 years in the third quarter, giving the Reserve Bank headroom for looser monetary policy.

At the same time, better-than-expected jobs growth across the Tasman stoked optimism the RBA will not have to cut rates as deeply as feared.

Traders are betting the RBNZ will cut 25 basis points from the official cash rate over the coming year and 75 basis points by Australia's central bank, according to the Overnight Index Swap curve.

New Zealand's central bank will review monetary policy next week and is expected to keep the benchmark rate at 2.5%. Australian third-quarter inflation figures will be released next week.

"There's a little more rate cuts priced in for New Zealand, and a little less for Australia, which has seen interest rates widening," says Joe Carpuso, currency strategist at Commonwealth Bank of Australia in Sydney. "That's helped push up the Aussie against the kiwi", referring to the trans-Tasman currencies colloquially.

Trading volumes were light in the local session with investors not looking for much to come out of the second day of the European Union leaders' summit. The kiwi edged down to 62.67 euro cents from 62.73 cents yesterday.

Investors will take their cues from the Federal Open Market Committee meeting next week. Last month the Fed embarked on its unlimited mortgage-backed security buying programme as the central bank tries to rekindle recovery in the world's biggest economy.

The trade-weighted index decreased to 72.87 from 72.93 yesterday, and is poised for a 0.3% weekly decline. The kiwi advanced to 51.01 British pence from 50.89 pence yesterday and was virtually unchanged at 64.96 yen from 64.97 yen.