Dollar gains against Australian as RBA rates on hold

Wednesday 2nd June 2010

The New Zealand dollar rose to a one-week high against the Australian dollar after the Reserve Bank of Australia kept its target interest rate unchanged as expected, setting the stage for a narrowing of the interest rate gap and providing near-term support for the kiwi.

RBA Governor Glenn Stevens kept the overnight cash rate target at 4.5% and noted concerns in financial markets about creditworthiness of some European nations, while saying continued “quite strong” growth in Asia “may need to moderate in the year ahead.”

Australia’s benchmark rate is two percentage points higher than New Zealand’s, though the gap is forecast to narrow as soon as next week when Governor Alan Bollard next reviews the official cash rate, with a 25 basis point hike predicted in a Reuters survey. Adding to expectations for a rate increase, the Bank of Canada raised its key rate a quarter point overnight.

The New Zealand dollar was little changed against the greenback, having climbed then fallen overnight as figures showed U.S. manufacturing gained for a 10th straight month in May and energy shares sold off on concern about BP Plc’s unabated Gulf of Mexico oil spill.

The kiwi “moved up after the RBA statement and we’re remaining relatively well supported,” said Alex Sinton, senior dealer at ANZ National. Given that New Zealand’s economic performance is “not too flash” versus Australia, “I’m not of the belief that we will make substantial gains” against the Australian dollar, he said.

The New Zealand dollar rose to 81.27 Australian cents from 80.82 cents late yesterday. Sinton said it may struggle to go higher than 81.50 cents.

The kiwi traded at 67.36 US cents, little changed from yesterday, and climbed to 61.44 yen from 61.16. The currency was little changed at 55.17 against the euro and sank to 46.09 British pence from 46.55 pence. The trade-weighted index, or TWI, edged up to 65.83 from 65.73 yesterday.

Sinton said for today the kiwi may trade in a range of 67.38 US cents and 67.95 cents.

The kiwi dollar pared an earlier gain against the US dollar after the results of Fonterra Cooperative Group’s monthly online auction, which showed average price for whole milk powder fell 3.4% to US$3,790 a tonne. Prices and volumes for the longest contract were the weakest, suggesting market volatility is making traders nervous about the outlook for prices.

Kevin Wilson, rural economist at ANZ New Zealand said with European and American farmers ramping up production, prices will probably start to come down.

In the US, the ISM manufacturing index fell to 59.7 in May, less than forecast, from 60.4 in the previous month, on a scale where a reading over 50 signals expansion.

Meantime, the Bank of Canada said the global economic recovery is “uneven” with developed economies still dependent on fiscal and monetary stimulus for growth.

Businesswire.co.nz

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