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NZ dollar becalmed after steady RBA stance

Tuesday 5th November 2019

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The New Zealand dollar was little changed after the Reserve Bank of Australia left its cash rate unchanged while saying it is prepared to ease monetary policy further if needed.

The kiwi was trading at 64.07 US cents at 5pm in Wellington from 64.01 cents at 8am and at 92.83 Australian cents from 92.92 cents.

RBA governor Philip Lowe said the outlook for Australia's economy is little changed from three months ago and that "after a soft patch in the second half of last year, a gentle turning point appears to have been reached."

But the risks to the global economy are on the downside with the US-China trade war grinding on, affecting "international trade flows and investment as businesses scale back spending plans because of the uncertainty."

He is expecting the Australian unemployment rate will fall below 5 percent and that inflation will gradually pick up from its current 1.7 percent annual pace – the RBA targets a 2-3 percent inflation rate.

In a speech a week ago, Lowe made it clear that RBA is monitoring other central banks and that he doesn't want to see the Australian dollar appreciating,

Today, Lowe said that "the Australian dollar is at the lower end of its range over recent times."

Peter Cavanaugh, the senior client advisor at Bancorp Treasury Service, says currency markets barely budged on Lowe's statement.

"This is a central bank that couldn't be happier with where things are and where it sees them going," Cavanaugh says.

The RBA has cut its cash rate from 1.5 percent to 0.75 percent this year with the last 25 basis point cut in early October.

Cavanaugh says the market is currently pricing in a 72 percent chance of another rate cut some time near the end of next year, "which for financial markets is akin to never-never land."

New Zealand's Reserve Bank will review its official cash rate next week and economists are divided on whether it will hold the OCR steady at 1 percent or cut it to 0.75 percent.

The New Zealand dollar was trading at 49.73 British pence from 49.68, at 57.60 euro cents from 57.48, at 69.73 yen from 69.53 and at 4.5010 Chinese yuan from 4.4992. The trade-weighted index was at 70.57 points from 70.52.

The two-year swap rate edged up to a bid price of 1.0539 percent from 1.0486 percent yesterday while 10-year swaps rose to 1.49 percent from 1.4475 percent.

(BusinessDesk)



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