NZ dollar above AU92c on RBA rate cut bets

The New Zealand dollar rose above 92 Australian cents for the first time since early March on speculation softer inflation data across the Tasman and weaker demand in China may prompt the Reserve Bank of Australia to cut its benchmark interest rate tomorrow.

The kiwi traded at 91.96 Australian cents at 5pm in Wellington, having earlier gained to as high as 92.20 cents, from 91.08 cents at the end of last week. The local currency rose as high as 70.19 US cents, a two-week high, and was recently at 69.91 cents, up from 69.73 cents at the New York close on Friday.

The Australian dollar has fallen since figures last week showed inflation fell in the March quarter for a lower-than-expected annual gain, raising questions about whether inflation will return to its long-term average as fast as the RBA expects. Also weighing on the Australian dollar, Chinese PMI data at the weekend showed manufacturing activity slowed in April, which may point to waning demand for Australia's coal and iron ore.

The chances of a rate cut "are at about 50-50 for tomorrow. If they don't go then we're going to see that (kiwi-Aussie) cross rate come off pretty hard," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. "My personal opinion is the RBA are reluctant cutters and will look through the CPI data."

The RBA's decision was a "line-ball call" and a cut "puts pressure on the RBNZ to go to," he said.

Traders expect the Reserve Bank of New Zealand will cut the official cash rate quarter-point to a record low 2 percent either at its June or August meetings, matching the RBA's cash rate if Australia's central bank holds off on a cut. The kiwi has jumped more than 4 percent against the Aussie since the inflation figures were released.

In a busy week, results of the latest GlobalDairyTrade auction are posted early Wednesday and labour market data for the first quarter is out later that morning, with some traders predicting the jobless rate will rise to 5.5 percent from 5.3 percent three months earlier. US non-farm payrolls for April round out the week and are expected to show the world's largest economy added about 200,000 jobs last month.

The kiwi may trade between 68 US cents and 72 cents this week, according to 11 currency analysts surveyed by BusinessDesk. On balance, it is seen rising this week.

The New Zealand dollar fell to 60.96 euro cents from 61.22 cents on Friday and declined to 74.50 yen from 74.77 yen. It rose to 4.5258 yuan from 4.5155 yuan. The kiwi rose to 47.85 British pence from 47.60 pence. The trade-weighted index rose to 73.51 from 73.31 at the end of last week.

The two-year swap rate fell 1 basis point to 2.23 percent and the 10-year swaps fell 2 basis points to 2.95 percent

(BusinessDesk)