The New Zealand dollar surged to a three-month high against its Australian counterpart, hovering just under 94 Australian cents, as expectations rise that the Australian central bank may reduce interest rates.
The kiwi touched 93.95 Australian cents overnight, its highest since March 27, and was trading at 93.56 cents at 8am in Wellington, from 93.45 cents at 5pm yesterday. The local currency slipped to 87.51 US cents from 87.67 cents yesterday after a report showed the US added 288,000 jobs last month, beating expectations for an additional 215,000 jobs and boosting optimism about a revival in the world's largest economy.
The Australian dollar declined after weaker than expected retail sales data and following dovish comments by Reserve Bank of Australia governor Glenn Stevens who said yesterday the Aussie was overvalued "and not just by a few cents" and that investors were underestimating the probability of a "significant fall" in the currency at some point.
Stevens said the RBA "still has ammunition on interest rates", prompting traders to increase their expectations for a 25 basis point cut in interest rates to 60 percent from around 30 percent previously, according to Bank of New Zealand.
"He was stronger in talking down the currency and he also hinted that they wouldn't rule out interest rate cuts," said Imre Speizer, Westpac Banking Corp senior market strategist. "Those two things are clearly going to push down the Aussie so therefore kiwi/Aussie has to rise. It looks like it could go further still."
