NZ dollar falls on Aussie coat-tails

The New Zealand dollar fell as investors sold Australasian currencies after the Reserve Bank of Australia cut its benchmark interest rate yesterday on concern about weak inflation.

The kiwi dropped to 69.12USc at 8am in Wellington, from 70.46USc immediately before the RBA's decision at 4:30pm yesterday. The Aussie also slid to 74.86USc from 77.09Ac ahead of the RBA move.

Investors shunned the Aussie and kiwi dollars after the RBA reduced its key rate by 25 basis points to 1.75 percent following weaker-than-expected first quarter inflation data last week. Most economists had expected the RBA to remain on hold, while traders were evenly split on the potential for a cut. Sentiment against the kiwi was further hurt by a softer GlobalDairyTrade auction overnight, with the GDT price index falling 1.4 percent, compared with expectations for a gain, and just a 0.7 percent increase in whole milk powder prices, lagging behind expectations for a rise closer to 4 percent.

"The big drop was yesterday afternoon's surprise RBA rate cut. We got pulled down by it, "  Bancorp Treasury Services adviser Peter Cavanaugh said. "Like it or not, the world lumps New Zealand with Australia in a lot of cases. We are just going along for the ride.

"The uninspiring GDT auction outcome hasn't really helped," he said. "The fall in the headline prices contrary to expectations implied by the futures that there would be a slight lift. It was disappointing."

New Zealand labour market figures published today are expected to show the unemployment rate increased to 5.5 percent in the March quarter, from 5.3 percent in the December quarter. Quotable Value's monthly housing data and the ANZ monthly commodity price index are also scheduled for release today.

However, Bancorp's Mr Cavanaugh said the main focus for the remainder of the week is US jobs data due on Friday for more clues on the timing of rate hikes by the Federal Reserve.

The New Zealand dollar was little changed at 92.27Ac from 92.26Ac at 5pm yesterday, after jumping to a two-month high of 92.94Ac following the RBA announcement.

Cavanaugh said traders will be looking to see whether the kiwi can make further gains against the Aussie, or if it will share continued Australian dollar weakness.

The New Zealand dollar fell to 60.07 euro cents from 60.49 cents yesterday, slipped to ¥73.57 from ¥73.95, and declined to 4.4859 yuan from 4.5172 yuan. It was little changed at 47.55 British pence from 47.54 pence. The trade-weighted index dropped to 73.02 from 73.40 yesterday.

(BusinessDesk)