The New Zealand dollar climbed to its highest level against its trans-Tasman counterpart after the Reserve Bank of Australia unexpectedly cut interest rates to help stoke flagging economic growth.
The kiwi climbed as high as 83.50 Australian cents, trading at 83.37 cents at 5pm in Wellington from 83.08 cents yesterday. It fell to 84.94 US cents at 5pm from 85.23 cents at 8am and 85.47 cents yesterday.
The RBA cut the target cash rate a quarter point to 2.75 percent after its board decided to use some of the scope available for lower rates to “encourage sustainable growth in the economy, consistent with achieving the inflation target”, which was tracking a little lower than expectations, governor Glenn Stevens said in a statement. While analysts were increasing their bets on future rate cuts, economists surveyed by Reuters were predicting no change at today’s meeting.
The Australian dollar sank to US$1.0183 from US$1.0239 immediately before the announcement, and Stevens said the exchange rate has been at a historically high level despite falling export prices and interest rates. The cut brings Australia’s benchmark rate closer to New Zealand’s 2.5 percent official cash rate.
“The Aussie inflation and credit environment gave them the scope to move and they took it,” said Christ Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. “This could be a catalyst for the kiwi/Aussie cross to press higher.”
Traders will be paying more attention to New Zealand’s six-monthly financial stability report tomorrow, which may give some insight into the Reserve Bank’s thinking on how it will use macro-prudential tools to head off an asset bubble. New Zealand’s central bank has to contend with a high exchange rate eating into export receipts, while at the same time containing a resurgent housing market in its biggest city, Auckland.
Tennent-Brown said if people think the use of the macro-prudential tools are the beginning of an effort to raise rates, that could help the central bank keep the OCR on hold for longer.
New Zealand government figures today showed labour costs rose at a quarterly pace of 0.4 percent in the first three months of the year, while total filled jobs grew 0.4 percent. The data acts as a precursor for the household labour force survey on Thursday, which is expected to show a small fall in the unemployment rate to 6.8 percent.
The kiwi fell to 64.92 euro cents at 5pm in Wellington from 65.13 cents yesterday and declined to 54.63 British pence from 54.85 pence. It fell to 84.15 yen from 84.70 yen, and the trade-weighted index decreased to 78.58 from 78.80 yesterday.