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NZ dollar falls against Aussie as RBA language rules out a rate cut

Tuesday 5th February 2019

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The New Zealand dollar fell half a cent against the Australian dollar after a statement from the Reserve Bank of Australia appeared to put paid to the chance of any rate cut there this year.

Against other currencies, the local currency was nudged a little higher with liquidity light due to the Lunar New Year celebrations in China and much of Asia.

The kiwi was trading at 68.97 US cents at 5pm in Wellington from 67.78 at 8am and at 95.07 Australian cents from 95.25 cents this morning

“It was an Aussie strength story,” says Kiwibank dealer Mike Shirley, adding that the kiwi fell from 95.60 cents immediately before the RBA statement.

The RBA kept its cash rate unchanged at 1.5 percent, which was no surprise to anybody.

“Where the surprise came from was that, leading into the announcement, the market was pricing in a reasonably good chance of a rate cut from the RBA over the course of this year,” Shirley says.

This morning, market pricing had suggested a one-in-three chance of such a cut this year.

“The language of the statement certainly wasn’t supportive of that,” he says.

The fact the RBA is expecting the underlying inflation rate to reach 2.25 percent by 2020 “is certainly not language that suggests a rate cut is imminent.”

The central bank did acknowledge weakness in recent data, saying that “as is the case globally, some downside risks have increased. GDP growth in the September quarter was weaker than expected.”

Data released earlier today in Australia showed December retail sales fell 0.4 percent in seasonally adjusted terms, defying expectations for a steady result.

The New Zealand dollar is trading at 52.88 British pence from 52.70, at 60.31 euro pence from 60.14, at 75.83 yen from 75.54 and at 4.6510 Chinese yuan from 4.5450.

The trade-weighted index rose to 74.36 points from 74.20.

The two-year swap rate fell to 1.8980 percent from 1.9082 yesterday; the 10-year swap rate is at 2.5030 percent from 2.5075.


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