NZ dollar falls vs. Aust as growth across the Tasman reduces rate cut talk

The New Zealand dollar extended its decline against its trans-Tasman counterpart after faster-than-expected second-quarter growth in Australia dulled expectations that country’s Reserve Bank will have to cut interest rates further.

The kiwi fell to 85.81 Australian cents at 5pm in Wellington from 86.11 cents immediately before the gross domestic product figures were released, and down from 86.63 cents yesterday. The local currency traded at 78.10 US cents at 5pm from 77.90 cents at 8am, down from 78.27 cents yesterday.

Australia’s economy grew 0.6 percent in the three months ended June 30, according to the Bureau of Statistics, just ahead of the 0.5 percent pace predicted in a Bloomberg survey of economists. The release came a day after the Reserve Bank of Australia kept rates on hold at 2.5 percent, while removing a reference to having scope to cut rates. Traders are pricing in just 2 basis points of reductions to the target cash rate in the coming year, compared to 17 basis points of cuts yesterday, according to the Overnight Index Swap curve.

The RBA statement yesterday showed “they didn’t have their finger on the trigger to pull another rate cut any time soon, and today’s GDP reinforced that,” said Michael Johnston, senior trader at HiFX in Auckland. “We may have a little further to run on the kiwi/Aussie to the downside, but that should be a good opportunity for exporters to jump in.”

The RBA meeting is the first of several central bank policy reviews this week including Europe, the UK, Japan and Canada. New Zealand’s Reserve Bank will publish its monetary policy statement next week, and the Federal Open Market Committee will meet later this month.

US employment figures on Friday are the next main event for traders this week, with the Federal Reserve linking the removal of stimulus to a lower jobless rate. Investors are expecting the Fed will start unwinding its stimulus programme as early as this month.

New Zealand residential building activity slowed in the second quarter as work in Christchurch to rebuild the country’s second biggest city fell from elevated levels. The $40 billion Canterbury rebuild is seen as a major plank to New Zealand’s economic recovery.

Prices of dairy products fell in the latest GlobalDairyTrade auction this morning, though volumes held up, extending the elevated levels that saw Fonterra Cooperative Group report record sales last month.

The local currency increased to 77.85 yen at 5pm in Wellington from 77.76 yen yesterday, and was unchanged at 59.32 euro cents. It fell to 50.16 British pence from 50.31 pence. The trade-weighted index decreased to 74 from 74.21.

(BusinessDesk)