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NZ dollar drops against Aussie after RBA keeps rates on hold

Tuesday 7th May 2019

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The New Zealand dollar fell sharply against the Australian dollar but was higher against the US dollar after the Reserve Bank of Australia left its cash rate unchanged at 1.5 percent.

The kiwi was trading at 93.95 Australian cents at 5pm in Wellington compared with 94.36 shortly before the RBA’s statement and 94.37 at 8am. It was trading at 66.12 US cents from 66.08 earlier today. The trade-weighted index was at 72.15 points from 72.17.

 Peter Cavanaugh, the senior client advisor at Bancorp Treasury Services, says the market was close to 50/50 betting on either a rate cut or no change.

“Therefore, somebody would be disappointed. Those that were pleased, didn’t have much conviction and those who were disappointed probably went away thinking there will be another day,” Cavanaugh says.

“The RBA’s statement reads neutral, very neutral and, if anything, has a slight positive bias.”

The Australian central bank expects underlying inflation to reach 2 percent in 2020 and to go a little higher. The labour market will remain strong and the “adjustment” in the housing market will continue, it believes.

“You read all that and you say, why do they have to do anything,” Cavanaugh says.

There had also been something for everyone in the Australian retail trade data released earlier today, he says.

The 0.3 percent increase in the month of March came in above expectations of a 0.2 percent increase but the March quarter sales fell 0.1 percent in inflation-adjusted terms, the first negative reading since the September quarter of 2012.

Other Australian figures showed a higher-than-expected trade surplus of A$5.14 billion compared with expectations of A$4.48 billion.

The market is now looking ahead to the Reserve Bank of New Zealand’s latest monetary policy statement due at 2pm tomorrow. The odds are slightly higher that the RBNZ will cut its official cash rate from 1.75 percent to 1.5 percent.

The market is also awaiting further developments on the China-United States trade front after President Donald Trump stirred the pot by threatening via tweet to raise tariffs on Chinese imports into the US.

A number of trade experts have said the Chinese weren’t particularly surprised by Trump’s tweets, just regarding it as Trump being Trump.

Vice-Premier Liu He is still scheduled to arrive in Washington for further talks on Wednesday.

The New Zealand dollar was trading at 50.38 British pence from 50.45, at 58.95 euro cents from 58.96, at 73.14 Japanese yen from 73.26, and at 4.4801 Chinese yuan from 4.4671.

The New Zealand two-year swap rate rose to 1.6426 percent from 1.6120 yesterday while the 10-year swap rate edged down to 2.1400 percent from 2.1650.

(BusinessDesk)

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