NZ dollar falls on Aussie coat-tails after RBA rate cut, weak dairy auction

Wednesday 4th May 2016

The New Zealand dollar fell as investors sold Australasian currencies after the Reserve Bank of Australia cut its benchmark interest rate yesterday on concern about weak inflation.

The kiwi dropped to 69.12 US cents at 8am in Wellington, from 70.46 cents immediately before the RBA's decision at 4:30pm yesterday. The Aussie slid to 74.86 US cents from 77.09 cents ahead of the RBA move.

Investors shunned the Aussie and kiwi dollars after the RBA reduced its key rate by 25 basis points to 1.75 percent following weaker-than-expected first quarter inflation data last week. Most economists had expected the RBA to remain on hold, while traders were evenly split on the potential for a cut. Sentiment against the kiwi was further hurt by a softer GlobalDairyTrade auction overnight, with the GDT price index falling 1.4 percent, compared with expectations for a gain, and just a 0.7 percent increase in whole milk powder prices, lagging behind expectations for a rise closer to 4 percent.

"The big drop was yesterday afternoon's surprise RBA rate cut. We got pulled down by it, " said Peter Cavanaugh, adviser at Bancorp Treasury Services. "Like it or not, the world lumps New Zealand with Australia in a lot of cases. We are just going along for the ride.

"The uninspiring GDT auction outcome hasn't really helped," he said. "The fall in the headline prices contrary to expectations implied by the futures that there would be a slight lift. It was disappointing."

New Zealand labour market figures published today are expected to show the unemployment rate increased to 5.5 percent in the March quarter, from 5.3 percent in the December quarter. Quotable Value's monthly housing data and the ANZ monthly commodity price index are also scheduled for release today.

However, Bancorp's Cavanaugh said the main focus for the remainder of the week is US jobs data due out Friday for more clues to the timing of rate hikes by the Federal Reserve.

The New Zealand dollar was little changed at 92.27 Australian cents from 92.26 cents at 5pm yesterday, after jumping to a two-month high of 92.94 cents following the RBA announcement.

Cavanaugh said traders will be looking to see whether the kiwi can make further gains against the Aussie, or if it will share continued Australian dollar weakness.

The New Zealand dollar fell to 60.07 euro cents from 60.49 cents yesterday, slipped to 73.57 yen from 73.95 yen, and declined to 4.4859 yuan from 4.5172 yuan. It was little changed at 47.55 British pence from 47.54 pence. The trade-weighted index dropped to 73.02 from 73.40 yesterday.

BusinessDesk.co.nz

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