The kiwi fell below 82 US cents in local trading after minutes from the Reserve Bank of Australia's last meeting indicated it is poised to cut interest rates in the face of a slowing Australian economy.
BUSINESSDESK: The New Zealand dollar fell below 82 US cents in local trading after minutes from the Reserve Bank of Australia’s last meeting indicated it’s poised to cut interest rates, in the face of a slowing Australian economy.
The kiwi fell to 81.62 US cents at 5pm from 82.01 cents at 8am and 82 cents yesterday.
The trade weighted index decreased to 72.81 from 73.29 yesterday.
Against the backdrop of a slowing Australian economy, the RBA minutes from this month’s meeting show the central bank’s next monetary policy decision will rely on the April 24 inflation figures.
Traders are betting the RBA will cut 95 basis points from the 4.25% target cash rate over the next 12 months, according to the Overnight Index Swap curve, and have priced in just 7 basis points of increases to New Zealand’s 2.5% official cash rate.
The prospect of lower interest rates prompted investors to sell down their holdings of Australasian currencies, and investors will be wary of any negative surprises in New Zealand’s first-quarter consumer price index figures out on Thursday.
The market is expecting 0.6% inflation in the quarter.
If New Zealand’s CPI is a “slightly better number, that won’t phase the RBNZ, but if it’s negative, it probably will – particularly if it’s due to a high kiwi keeping prices down, which would be the third time in a row,” Imre Speizer, market strategist at Westpac Banking said.
“There’s potential for a negative move [in the kiwi] out of the CPI.”
So-called risk sensitive currencies such as the kiwi and Australian dollars have come under pressure over the past couple of days after the yield on the benchmark 10-year Spanish government bond spiked up above 6%, stoking fears the Mediterranean nation may be the next to succumb to the region’s debt woes.
Mr Speizer said Spain’s housing bubble has put pressure on local lenders, and that in turn will make it tougher for the sovereign to borrow money as the market bets it will be forced to tap a regional bailout like Greece.
“Europe is back on the radar and is a major negative for potential risks ahead.”
Mr Speizer said he expects the kiwi dollar will fall down to the bottom of its current range, near 80.60 US cents, though it will take a major negative shock to push it lower.
The New Zealand dollar fell to 62.23 euro cents from 62.91 cents yesterday, and declined to 51.41 pence from 51.71 pence.
It dropped to 78.97 Australian cents from 79.39 cents yesterday, and decreased to 65.62 yen from 66.16 yen.
