NZ dollar declines vs. Aussie ahead of RBA decision

Tuesday 4th August 2015

The New Zealand dollar declined against the Australian dollar ahead of the Reserve Bank of Australia's decision on interest rates today.

The kiwi touched 90.82 Australian cents overnight, and was trading at 90.23 cents at 8am in Wellington, from 90.26 cents at 5pm yesterday. The local currency slipped to 65.70 US cents from 65.89 cents yesterday. The trade-weighted index was at 70.30 from 70.31 yesterday.

Australia's Reserve Bank is likely to keep interest rates on hold today, according to 25 out of 28 economists in a Bloomberg poll. While RBA governor Glenn Stevens is expected to keep the rate at 2 percent, traders will be closely watching the tone of his statement for signs of potential weakness ahead.

"The market consensus is strongly in favour of steady rates from the RBA on August 4, though the small minority that is forecasting a 25 basis point rate cut hints at the importance of this week's policy meeting as a gauge to the likelihood of further easing from the RBA," Jane Foley, senior currency strategist at Rabobank in London, said in a note.

"This week’s RBA decision comes against the backdrop of intense concerns about Chinese growth projections and increased volatility in iron ore and coal prices," Foley said. "A glut of supply combined with concerns about Chinese growth has combined to recently take prices of both commodities to 10 year lows."

Currencies of commodity exporting nations including Australia, New Zealand and Canada have been under pressure amid signs of a slowdown in China, the world's biggest consumer of raw materials.

Still, while the weakness in the prices for Australia’s largest commodity exports threatens to flow back to Australia in the form of reduced incomes and potentially increased unemployment, the jobs market to date has remained robust, Foley said.

The RBA decision is released at 4:30pm New Zealand time. Australia also has trade and retail sales data for June scheduled for release today.

In New Zealand today, monthly reports on vehicle registrations, property values and commodity prices are scheduled for publication.

The New Zealand dollar was little changed at 59.97 euro cents from 60 cents yesterday, and at 42.15 British pence from 42.17 pence. It fell to 81.45 yen from 81.72 yen yesterday.

BusinessDesk.co.nz

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