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NZ dollar gains vs Aussie as Westpac rate hike poses questions for RBA

Thursday 30th August 2018

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The New Zealand dollar gained against its trans-Tasman counterpart after an out-of-cycle rate hike by Westpac Banking Corp caused traders to question the Reserve Bank of Australia's policy stance. 

The kiwi rose to 91.83 Australian cents as at 8am in Wellington from 91.32 cents yesterday. The local currency was largely unchanged at 67.13 US cents from 67.10 cents yesterday. 

The Australian dollar fell about half a US cent after Westpac yesterday raised its variable mortgage rate 14 basis points, citing the high cost of wholesale funding for its decision. The move comes with the RBA projecting a flat target cash rate at 1.5 percent for the foreseeable future and caused traders to question whether the central bank will have to adjust its economic forecasts and monetary policy. New Zealand's Reserve Bank is open to raising or lowering the official cash rate. 

"The AUD got hit yesterday by news that one of the large Australian banks had lifted its mortgage rates, and the implications this has for future RBA hikes," ANZ Bank New Zealand economists Liz Kendall and Philip Borkin said in a note. "We need to respect this development, although still believe further upside in this cross here will be limited."

The local currency has been in demand this week as efforts to reach a trade agreement between the US, Mexico and Canada have soothed concerns about growing protectionism. Still, the cold relationship between the US and China remains a concern. The kiwi rose to 4.5769 Chinese yuan from 4.5693 yuan yesterday.

Domestically, the ANZ business outlook is in focus with pessimistic firms a key area of concern for the government. Prime Minister Jacinda Ardern met those concerns head-on in a speech to a business audience this week where she talked down the prospect of imposing sector-wide collective employment agreements and set up a new advisory council headed by Air New Zealand chief Christopher Luxon. 

The kiwi dropped to 51.50 British pence from 52.10 pence yesterday after European Union chief Brexit negotiator Michel Barnier said the regional bloc was ready to offer the UK a deal that may include an "ambitious free trade agreement" but won't compromise its single market principles. Negotiations resume on Friday. The local currency traded at 57.33 euro cents from 57.36 cents yesterday. 

The kiwi rose to 74.97 yen from 74.62 yen yesterday. The trade-weighted index was at 72.44 from 72.30 yesterday. 


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