NZ dollar declines as bets rise on Australasian rate cuts

The New Zealand dollar declined after a weaker outlook for Australian inflation added to speculation that both Australasian countries are set to cut interest rates again, denting demand for their currencies.

The kiwi slid to 68.14USc at 8am in Wellington, from 68.3USc at the New York close and 68.54USc on Friday, while the Aussie sank to 73.54USc from 73.89USc on Friday. The trade-weighted index softened to 72.66 from 72.91 on Friday.

The Antipodean currencies have fallen out of favour with investors after the Reserve Bank of Australia on Friday lowered its forecast inflation track, adding to the case for a further interest rate cut across the Tasman and increasing the chances that New Zealand's Reserve Bank may follow suit. Some 17 out of 23 analysts expect the RBA to cut its cash rate by 25 basis points to 1.5% by August, according to a Bloomberg survey, while traders are pricing in a 78% chance of a 25 basis point cut by the RBNZ in June, and a more than 50% chance of a follow-up 25 basis point cut by November, according to the overnight interest rate swap market.

"With the RBA expected to struggle to reach its inflation target over the next couple of years, a number of analysts changed their calls to predict further rate cuts," Bank of New Zealand currency strategist Jason Wong said in a note. "The New Zealand dollar fell in sympathy, with investors concluding that, with the same forces affecting New Zealand, further Reserve Bank easing was also more likely."

The greenback held up on Friday in the US, even after a weaker-than-expected US non-farm payrolls release that showed the world's biggest economy added 160,000 jobs last month, compared with expectations of about 200,000, with concern about the headline number offset by figures showing annual wage inflation beat estimates at 2.5%.

The New Zealand dollar slipped to 92.59Ac from 92.71Ac on Friday, fell to 59.78 euro cents from 60.10 cents, sank to 4.4271 yuan from 4.4578 yuan, declined to ¥72.94 from ¥73.43 and edged lower to 47.26 British pence from 47.33 pence

(BusinessDesk)