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Dollar may gain on predicted rate cut by RBA

By Paul McBeth

Tuesday 4th November 2008

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The New Zealand dollar may extend its gain against its Australian counterpart with the Reserve Bank of Australia (RBA) poised to cut its benchmark rate today to revive growth in New Zealand’s biggest export market.

The RBA may cut its benchmark rate by 50 basis points to 5.5%, the lowest level since May 2006, on signs the Australian economy will be undermined by the looming global recession. In a further sign of the worldwide economic slump, US manufacturing fell at its fastest rate in 26 years and weakening demand for American exports.

The kiwi climbed to 87.47 Australian cents from 86.96 cents yesterday, and rose to 59.25 US cents from 59.12. The New Zealand dollar increased to 46.97 euro cents from 46.11.

“We could see the kiwi edge up to 88 Australian cents” after the rate cut, said Danica Hampton, currency strategist at BNZ. “While further monetary policy easing is expected from the RBA, Bank of England and ECB this week, interest rate cuts will not be enough to prevent a global recession.”

Australian gross domestic product rose 0.3% in the second quarter, the slowest rate in three years. Some economists are predicting that economy will tip into recession.

Rio Tinto Group chief executive Tom Albanese has said the economic slowdown in China is worsening, and growth will not rebound until next year. This can be seen as a sign of weaker global growth and slowing demand as China is a major driver of the world economy, said Westpac economist Michael Gordon.

Raw industrial materials fell at an annual rate of as much as 56% last week, the fastest fall since 1949 and worse than the declines preceding every recession since then, according to the Journal of Commerce.

In New Zealand, the ANZ Commodity Price Index, due today, will likely show another decline in world prices with dairy products continuing to fall sharply, BNZ’s Hampton said.

Employment figures due out on Thursday are expected to show the jobless rate rose to 4.3% in the third quarter from 3.9% in the second.

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