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Aussie rate expectations lift kiwi

NZ NewswireNZ Newswire 1/08/2016 Jonathan Underhill

The New Zealand dollar has risen to a three-week high against the Australian dollar amid expectations the Reserve Bank of Australia will cut its cash rate to a record low 1.5 per cent, boosting the relative appeal of the kiwi.

The New Zealand dollar touched 95.20 Australian cents and was trading at A95.05c at 8am on Tuesday in Wellington, from A94.91c late on Monday.

The kiwi fell to US71.67 cents from US72.23c.

Traders were putting odds of 68 per cent on the RBA cutting its benchmark interest rate at 4.30pm (NZT) on Tuesday after figures last week showed core inflation rose just 0.4 per cent in the second quarter for a record low annual rate of 1.5 per cent.

A cut would widen the gap with New Zealand's official cash rate at 2.25 per cent, albeit only temporarily, given expectations the RBNZ will make its own cut next week.

"NZD/AUD has the potential to spike higher should the RBA cut at 4.30pm as we expect; this is not fully priced in," ANZ NZ's David Croy said in a note.

The kiwi could fall against the greenback if the Australian dollar declined following a rate cut, he said.

"But the reality is, we're unlikely to see NZD weakness sustained until the growth cycle turns, and unless we see the OCR go much lower."

In the domestic market, QV is set to release house price data for July on Tuesday and the Reserve Bank releases its latest survey of expectations in the afternoon, which will show how much low inflation expectations have become entrenched.

On Tuesday morning the kiwi slid to 73.36 yen from 73.89 yen and declined to 4.7577 yuan from 4.7893 yuan. It fell to 64.22 euro cents from 64.60c and slipped to 54.35 British pence from 54.50p.

The trade-weighted index fell to 76.26 from 76.61

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