NZ dollar falls vs. Australian dollar as RBA's Stevens hints at April rate hike

Tuesday 30th March 2010

The New Zealand dollar declined against the Australian dollar amid the prospect of another rate hike across the Tasman next week when the Reserve Bank of Australia holds its April meeting.

Markets boosted their forecast for higher Australian interest rates this year, predicting the central bank will lift rates by 124 basis points over the coming year, according to the Overnight Index Swap curve.

RBA Governor Glenn Stevens said he was uncomfortable with rising house prices and warned people against overleveraging, in an interview on Seven Network’s Sunrise. The OIS rose 5 basis points after the interview, and continues to show the divergence between the trans-Tasman economies, where the RBA moved quickly to tighten monetary policy after Australia dodged a recession, while the Reserve Bank of New Zealand has repeatedly held off from raising rates as the economy slowly recovers from its worst recession in 18 years.

“If the RBA delivers another rate hike, it will drag the kiwi higher, but there are a lot of sellers lining up who are willing to sell short” in the expectation they can buy it back at a cheaper price, said Khoon Goh, senior markets economist at ANZ National Bank. “The kiwi’s finding a lot of selling interests at the 71 US cents level.”

The kiwi dropped to 77.39 Australian cents from 77.69 cents yesterday, and was little changed at 70.86 U.S. cents from 70.89 cents. It edged down to 65.99 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 66.05, and slipped to 65.60 yen from 65.62 yen. It inched up to 52.66 euro cents from 52.62 cents yesterday, and traded at 47.35 pence from 47.33 pence.

Goh said the currency may trade between 70.50 US cents and 71.20 cents today with investors waiting for a speech from RBA Deputy Governor Guy Debelle this evening after Stevens’ comments yesterday.

He predicts the kiwi faces more risks to the downside with first-quarter data likely to weigh on the New Zealand dollar when it comes through in the next couple of months.

Investors’ appetite for higher yields improved yesterday after the European Union announced its bail-out package for Greece, and the Mediterranean nation issued five billion euros worth of seven-year bonds at 5.9%.

“Greece managed to flog off debt, though it’s not cheap,” Goh said.

Businesswire.co.nz

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