Kiwi slumps to decade low against Aussie

Tuesday 1st March 2011

The New Zealand dollar sank to a more than decade low against the Australian dollar today, on the view that interest rates are likely to fall in New Zealand following last week's devastating earthquake in Christchurch.

Since last Tuesday's quake, the kiwi has lost ground against most key trading partners, although it is fairly steady against the weak US dollar.

By 5pm, the kiwi was at A73.99c - its lowest point since late 2000, and down from late yesterday's A73.92c.

"The assumption is that rates in New Zealand will be on hold for a very long time, if not the change of a cut, whereas the Australian economy continues to outperform and maybe a chance of rate hikes in Australia," said ANZ Institutional Bank foreign exchange manager Murray Hindley.

"I guess people are switching into Australia out of New Zealand."

The Reserve Bank of Australia kept rates at 4.75% today, in a move expected by the market which is pricing in a rise later this year.

In New Zealand, retail banks have begun lowering their home lending and deposit rates in response to falling wholesale interest rates, and the likelihood of a cut to the Reserve Bank's Official Cash Rate.

Against the US dollar, the kiwi was holding above US75c but encountering sellers around US75.50c. By 5pm, the kiwi was buying US75.22c from US75.07c late yesterday afternoon.

The currency was weaker at 0.5446 euro from 0.5462 euro yesterday and at 46.23 pence from 46.66p, but up at 61.75 yen from 61.31 yen.

The trade weighted index was unchanged at 66.45.

The US dollar remains soft after hitting a 3-1/2-month low against major currencies on speculation the US Federal Reserve will lag other central banks's interest rate hikes to ward off inflation pressures.

US Fed chairman Ben Bernanke is likely to sound a note of caution about the US economy at his semi-annual testimony before the Senate Banking Committee later on Tuesday.

NZPA

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