NZ dollar jumps to new 5-year high vs. A$ as RBNZ more hawkish on rate hikes

The New Zealand dollar climbed to a new five-year high against its Australian counterpart after Reserve Bank governor Graeme Wheeler signalled steeper interest rate hikes next year to quell looming inflation pressures, underlining the disparity between the two nations’ economies.

The kiwi climbed as high as 91.73 Australian cents, and was at 91.63 cents at 5pm in Wellington from 90.62 cents yesterday. The local currency pared its loss against the greenback after the RBNZ review, trading at 82.64 US cents at 5pm from 82.36 cents at 8am, little changed from 82.78 cents yesterday.

Wheeler kept the official cash rate at 2.5 percent today, as expected, and said its forecasts suggest the key rate will rise 2.25 percentage points over the coming two-and-a-quarter years to head off any inflationary pressures. The statement was more aggressive than the market was expecting, and firmed up the view that New Zealand rates will get more attractive than their Australian counterparts, despite better than expected employment figures across the Tasman.

The yield on the New Zealand 10-year government bond was 4.83 percent at 5pm in Wellington, about 50 basis points above its Australian equivalent.

“The kiwi/Aussie cross bore all the brunt of it,” said Tim Kelleher, head of FX sales NZ, at ASB Institutional in Auckland. “That cross is like a freight train at the moment.”

Kelleher said the local currency is stuck in a range between 81.50 US cents and 83.50 cents, and is unlikely to budge out of that band until the Federal Reserve starts scaling back its asset purchases. The Fed will review monetary policy next week, and is expected to take a more favourable view on the economy after US legislators reached a deal on the fiscal deficit.

The impact of the Reserve Bank’s restrictions on low equity home loans appeared to show up in the latest house sale figures, with the volume of turnover down 6.6 percent in November from a year earlier, largely in the bottom end of the market.

The New Zealand dollar slipped to 59.91 euro cents from 60.15 cents yesterday and increased to 50.50 British pence from 50.33 pence. It declined to 84.67 yen from 84.92 yen yesterday. The trade-weighted index was little changed at 77.56 from 77.53 yesterday.

(BusinessDesk)