NZ dollar extends gains vs. Aussie as RBA minutes back up Stevens' dovish view

Tuesday 21st April 2015

The New Zealand dollar extended its gains against its Australian counterpart after minutes of the Reserve Bank of Australia's last policy meeting echoed comments by governor Glenn Stevens that interest rate cuts may be needed to foster sustainable growth.

The kiwi traded at 99.39 Australian cents as at 5pm in Wellington and earlier touched 99.44 cents, from 98.69 cents late yesterday. It reached 99.78 cents on April 6, the closest it has got to parity since being floated. The local currency slipped to 76.53 US cents from 77.01 cents yesterday.

RBA policymakers deemed that further easing in policy "may be appropriate", according to the minutes of the bank's April meeting. They elected to keep the cash rate at 2.25 percent pending further data. Stevens told a meeting in New York overnight that "interest rates should be quite accommodative and the question of whether they should be reduced further has to be on the table." Speculation about the timing of rate cuts has put added focus on first-quarter inflation data, due out tomorrow and expected to be weak.

"The market took Stevens' comments as slightly dovish," said Chris Weston, chief market strategist at IG Markets. "The issue has shifted from whether they will cut rates, to what will take them below 2 percent," he said, adding that some economists see the cash rate falling to 1.75 percent or even 1.5 percent.

Traders are pricing in a 56 percent chance that the RBA will cut rates at its next meeting on May 5, according to the Overnight Index Swap Curve. Australia's consumers price index rose 0.2 percent in the quarter for an annual rate of 1.3 percent, according to a Reuters survey. Weston said a strong number may mitigate the case for a rate cut any time soon.

In a question and answer session following his speech, Stevens said the Australian dollar would likely fall further.

The New Zealand dollar slipped to 51.36 British pence from 51.49 pence yesterday, weakened to 71.28 euro cents from 71.46 cents and fell to 91.37 yen from 91.46 yen yesterday. The trade-weighted index dropped to 80.02 from 80.20 yesterday.

BusinessDesk.co.nz

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