You are using an older browser version. Please use a supported version for the best MSN experience.

NZ dollar soars to 2-month high vs Aussie

NZ NewswireNZ Newswire 3/05/2016 Jonathan Underhill

The New Zealand dollar jumped to a two-month high against the Australian dollar after the Reserve Bank of Australia cut its cash rate citing weaker-than-expected inflation, widening the gap with local interest rates.

The kiwi touched 92.94 Australian cents, the highest since Feb. 29, and traded at 92.23 cents as at 5pm in Wellington, from 91.42 cents immediately before the RBA statement and from 92 cents on Monday.

The currency dropped to 69.85 US cents, having earlier gained to as high as 70.53 cents, just below the 10-month high 70.54 cents reached in April, from 69.93 cents on Monday.

The market had been evenly split on a rate cut by the RBA since figures last week showed inflation fell 0.2 per cent in the first quarter, for an annual rate of 1.3 per cent, keeping the rate below the central bank's 2 per cent-to-3 per cent target.

The currency reaction increases pressure on New Zealand central bank governor Graeme Wheeler to cut the official cash rate to 2 per cent, to bring the kiwi down to a level to try to stoke tradables inflation.

"Wheeler is under pressure because of the currency - that's the channel," said Imre Speizer, a strategist at Westpac Banking Corp.

"They cut, it was a surprise. The kiwi has risen and all else being equal that's an additional reason for the RBNZ to cut."

Whether Wheeler does cut rates at the June 10 policy review will depend on the extent to which the trade-weighted index remains above the central bank's projections, he said.

The TWI initially surged after the RBA rate cut, to reach 74.02, before falling back to 73.43, from 73.53 on Monday.

The local currency fell to 73.96 yen from 74.54 yen yesterday and fell to 4.5205 yuan from 4.5271 yuan. The kiwi slipped to 47.58 British pence from 47.87 pence on Monday and fell to 60.53 euro cents from 60.97 cents.

The two-year swap rate rose 5 basis points to 2.28 per cent and the 10-year swaps rose 6 basis points to 3.01 per cent.

image beaconimage beaconimage beacon