Kiwi falls against Aussie ahead of RBA review

Tuesday 1st September 2009

The New Zealand dollar fell against its Australian counterpart ahead of the Reserve Bank of Australia's review of interest rates today, while the greenback fell against most of its trading partners as fund managers cashed in their US dollar holdings.

Australia's central bank is expected to hold its benchmark interest rate at 3%, amid speculation Governor Glenn Stevens will hint at an early rate hike today.

RBA officials have warned Stevens against keeping rates too low for too long, and the market is betting the central bank may boost rates as early as October this year.

Meanwhile, the Dollar Index, a measure of the greenback versus a basket of five trading partners, fell 0.3% to 78.15 as some fund managers unwound their US dollar assets for month-end.

The Standard & Poor's 500 gained 3.4% in August, and economists predict it may be heading for a brief period of weakness.

"If there's any clue that we might get a rate hike in October, the kiwi-Aussie will go lower - it's pretty ripe for a pull-back," said Imre Speizer, currency strategist at Westpac Banking Corp., using the colloquial names of the trans-Tasman currencies.

"The month-end fix was always going to result in the US dollar being sold by fund managers who were over-weight with US equities."

The kiwi fell to 81.12 Australian cents from 81.33 cents yesterday, and gained to 68.51 US cents from 68.30 cents. It was little changed at 63.42 on the trade-weighted index, or TWI, a measure of the currency against the yen, euro, pound, greenback and Australian dollar, from 63.35, and was unchanged at 47.76 euro cents. It rose to 63.75 yen from 63.48 yen yesterday.

The kiwi dollar climbed 2.5% against its Australian counterpart in August, rising as high as 82.25 cents. Speizer predicts the currency will come back to 80 cents after the RBA announcement, and any extended weakness could see if decline to 79.50 cents.

China's production manufacturing index out today may continue to send jitters in the markets about the world's fourth largest economy contribution to global recovery. The price of oil and copper declined yesterday amid speculation Chinese state owned enterprises may cancel commodity contracts.

The Shanghai Composite Index tumbled 6.7% yesterday, rounding out a 22% slump in August.

Businesswire.co.nz

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