Kiwi touches 10-week low against US dollar as easing looms

The kiwi hit a 10-week low against the US dollar in trading on Thursday, going as low as 70.36USc as economic data showed food prices in New Zealand fell and the pace of house price rises in Auckland eased off.

The kiwi was trading at 70.57USc shortly after 5pm in Wellington, down from 70.72USc early this morning and 70.81USc yesterday. The trade-weighted index rose slightly to 76.04 from 76.03 a day ago.

Statistics NZ said food prices in September fell by a seasonally adjusted 0.2% in September, following a 1.3% rise in August. Food accounts for just under a fifth of the consumers' price index. Data from the Real Estate Institute showed house prices in Auckland rose 7% in September compared to a year earlier, much lower than the 14% annual growth recorded in August.

Michael Johnston, senior trader at Hifx in Auckland said, "All the domestic data today makes it easier for the Reserve Bank to cut rates. The food price index came in low, the steam is coming out of the Auckland property market, all this reinforces the downward movement of the kiwi."

The Reserve Bank is widely expected to cut the official cash rate in November, a notion given added credence in a speech by assistant governor John McDermott in a speech in Rotorua earlier this week. Next Tuesday's consumer price index figure is expected to be flat, bringing annual inflation down to just 0.1% according to a note from economists at ASB Bank published this afternoon.

The bank has the mandate to deliver inflation between a target band of 1-3 percent.

Mr Johnston said that the minutes from the most recent US Federal Reserve meeting published in the US overnight suggested it was "fairly promising they would raise rates before the end of the year, probably December. We should see the New Zealand dollar continue to underperform."

The New Zealand dollar gained against its transtasman counterpart, reaching 93.62Ac from 93.42Ac yesterday. It fell slightly against the euro at 63.99 cents, down from 64.06 cents. Against the Chinese yuan, it fell to 4.7444 from 4.7568, reflecting weaker than expected trade data. It was almost flat against the yen at 73.25, from 73.24 yesterday.

Against Britain's volatile pound, the Kiwi was up, at 57.88 pence, compared to 57.55 yesterday.

New Zealand's two-year swap rate fell seven basis points to 2.00% while the ten-year fell nine basis points to 2.57%.

(BusinessDesk)