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NZ dollar falls vs. Aussie as Australian data prompts rate cut rethink

Wednesday 2nd March 2016

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The New Zealand dollar fell to a month-low against its trans-Tasman counterpart after Australia's economy grew more than expected in the final three months of the year, prompting some investors to rethink their bets on a rate cut. 

The kiwi dropped as low as 91.62 Australian cents and was trading at 91.69 cents at 5pm in Wellington from 92.48 cents yesterday. It was little changed at 66.24 US cents from 66.28 cents at 8am, and up from 66 cents yesterday. 

Australia's gross domestic product grew 0.6 percent in the December quarter, according to the Bureau of Statistics, more than the 0.4 percent economists were predicting. That comes a day after the Reserve Bank of Australia shrugged off low inflation when it kept the target cash rate at 2 percent, and noted the country's improving labour market, increased pace of business lending and a declining currency. 

The GDP data "was much stronger than expected and the market had priced in one-and-a-half interest rate cuts for the RBA", said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. The prospect of strong growth scaled back bets on the RBA cutting interest rates and "that's caused the big sharp fall in the kiwi/Aussie today" he said. 

Westpac's Speizer said the trans-Tasman cross rate has been holding up since November, and if the kiwi breaks below 91.50 Australian cents it could move towards 90 or 91 cents in the next month or two. 

Local data today showed New Zealand property values continued to rise at a slower pace in February as lending restrictions reined in activity in the country's biggest city, Auckland. Meantime, dairy prices rose at the latest GlobalDairyTrade auction, the first such increase this year. 

US interest rates rose after data continued to show the world's biggest economy is in good heart, and helped New Zealand swap rates to bounce from the record lows reached yesterday. Two-year swaps increased four basis points to 2.41 percent and 10-year swaps gained eight basis points to 3.1 percent. 

The kiwi rose to 4.3394 Chinese yuan from 4.3171 yuan yesterday after the People's Bank of China lowered the daily fix to a four-week low. It climbed to 75.42 yen from 74.27 yen yesterday, and increased to 60.99 euro cents from 60.65 cents. It was little changed at 47.47 British pence from 47.34 pence, and the trade-weighted index edged up to 72.14 from 72.02 yesterday.

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