NZ dollar rises to three-week high against Aussie

The New Zealand dollar rose to a three-week high against the Australian dollar amid expectations the Reserve Bank of Australia will cut its cash rate to a record low 1.5% today, boosting the relative appeal of the kiwi.

The New Zealand dollar touched 95.20Ac and was trading at 95.05Ac as at 8am in Wellington, from 94.91Ac late yesterday. The kiwi fell to 71.67USc  from 72.23USc  yesterday.

Traders yesterday were putting odds of 68% on the Reserve Bank of Australia  cutting its benchmark interest rate at 4:30pm (NZ time) today after figures last week showed core inflation rose just 0.4% in the second quarter for a record low annual rate of 1.5%. A cut would widen the gap with New Zealand's official cash rate at 2.25%, albeit only temporarily, given expectations the local central bank will make its own cut on August 11.

The New Zealand dollar  has the potential to spike higher against the Aussie dollar should the Reserve Bank of Australia cut at 4.30pm as we expect; this is not fully priced in," David Croy, senior rates strategist at ANZ New Zealand, said in a note.

The kiwi could fall against the greenback if the Australian dollar declined following a rate cut, he said. "But the reality is, we're unlikely to see New Zealand dollar  weakness sustained until the growth cycle turns, and unless we see the OCR go much lower."

Having declined the past few days, the US dollar index edged higher overnight after William Dudley, president of the New York Fed, said investors may be underestimating the number of times the central bank is prepared to hike rates this year and next.

In the domestic market, QV is set to release house price data for July today and the Reserve Bank releases its latest survey of expectations this afternoon, which will show how much low inflation expectations have become entrenched. Overnight, the latest GlobalDairyTrade auction will be closely watched.

The trade-weighted index fell to 76.26 from 76.61 yesterday. The kiwi slid to ¥73.36  from ¥73.89  and declined to 4.7577 yuan from 4.7893 yuan. It fell to 64.22 euro cents from 64.60 cents and slipped to 54.35 British pence from 54.50 pence.

(BusinessDesk)