Dollar falls against Aussie as cash rate left unchanged

The New Zealand dollar fell by almost A1c against the Aussie dollar after the Reserve Bank of Australia (RBA) opted to leave its official cash rate unchanged at 2.25 per cent.

By late afternoon, the cross rate was at A98.28c, after trading at A99.10c just before the RBA's 4.30 pm announcement.

The New Zealand dollar had earlier been close to parity with the Australian dollar as speculation grew that the RBA would again cut its rate after moving in February, thereby widening the gap between the Australian and New Zealand rates. The Reserve Bank of NZ's official cash rate stands at 3.5 per cent.

The RBA, in a statement, said it decided to keep interest rates steady for the time being.

"Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target," the bank said.

The Australian dollar has been under pressure against most currencies - the New Zealand dollar included - since the RBA renewed its easing bias early this year in the wake of sharply lower iron ore prices.

Economists said the New Zealand dollar's strength over the last few months, compared with the Australian dollar, reflected divergent paths of the two economies and the interest rate differential.

Australia's economy has been hit hard by sharply lower commodities prices, while New Zealand's has remained relatively resilient, despite soft dairy prices.

The New Zealand dollar has also been strong against the euro - for similar reasons. The European Central Bank has embarked on a quantitative easing programme to try and rejuvenate the Eurozone, putting the euro under downward pressure against most major currencies.

But against the main currency benchmark - the US dollar - the New Zealand dollar has declined, trading today at US75.5c compared with just over US88c early last year, reflecting the greenback's renewed strength as the United States emerges from the shadow of the global financial crisis.

'A credible path of sustainable growth'

Earlier today, Finance Minister Bill English said he would feel some satisfaction if the Kiwi dollar reached parity with the Australian dollar.

But he would not go so far as to say it would be something to celebrate.

"In 2011 we were 75c; I'd rather be closer to $1 than 75c," he told herald.co.nz.

But his view was based on what was driving the movement, including a sense of uncertainty about an economy that had been on a very positive track for 30 years.

"Some of it I am pleased about and that is that we are on a credible path of sustainable growth and that's good.

Read more: NZ dollar may breach Aussie if RBA cuts cash rate

"But the other bit that's driving it is uncertainty about the Australian economy and that's bad because we'd want them to be in good shape.

"So I'd personally be satisfied about what it tells us about the New Zealand influence on it but not what it tells us about the Australian influence on it."

Asked if he thought there was any rationale for intervention by the Reserve Bank to bring the Kiwi down, he said the Reserve Bank had expressed a strong view about the currency "and I'm sure that if they thought the circumstances were right for intervention, they would probably intervene, given the strength of their rhetoric about the New Zealand dollar being too high. "

"They have laid out publicly what those conditions are, and they are probably not met at the moment."

English said he is planning to visit Australia for three days next week to try to get a better understanding of the economy there.

He said New Zealand was too reliant on media commentary and he wanted to talk to businesses on the ground.

"We are a bit inclined to think we have a good understanding of what is going on in the Australian economy but I actually want to spend two or three days getting around there, talking to people who are starting on this adjustment process and trying to get a handle on where it is up to."

Labour finance spokesman Grant Robertson said parity with the Australian dollar held back exporters and incomes.

"There's no point in being able to spend relatively more money at Surfers' Paradise if you don't earn enough to save for the airfare," he said.

The Reserve Bank Governor and the IMF had said the dollar was about 15 per cent over-valued.

"The problem is the Reserve Bank needs to keep our interest rates higher than almost any other developed country to stop the housing crisis from exploding.

"If the Government stopped sitting on its hands and built more houses, Graeme Wheeler would have more scope to lower interest rates and take the pressure off our dollar."