NZ dollar stalled as Aussie rate outlook offsets improved business sentiment

The kiwi was trading at 66.00 US cents at 5pm.

The New Zealand dollar remained trapped in a tight trading range as increasing expectations the Reserve Bank of Australia will cut interest rates in February offset improving business confidence on this side of the Tasman.

The kiwi was trading at 66.00 US cents at 5pm in Wellington from 66.01 at 8am while the trade-weighted index was at 72.56 points from 72.51.

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The RBA said in the minutes from its last meeting on December 3 that although it still thinks the Australian economy has reached "a gentle turning point" it doesn't consider the current rate of wage growth is "consistent with inflation being sustainably within the target range."

Low growth in household incomes "present a downside risk to consumer spending, and that a low appetite for risk could be constraining businesses' willingness to invest," the minutes said.

Tim Kelleher, head of foreign exchange sales at Commonwealth Bank of Australia, said he didn't think the RBA's stance had changed much. But he noted that the market has priced in another 30 basis points of cuts to Australia's cash rate, which currently sits at 0.75 per cent.

By contrast, the market is pricing in just eight basis points of cuts in RBNZ's official cash rate, Kelleher said.

Marcel Thieliant, an economist at Capital Economics, said he suspects the weakness in private consumption in the third quarter will prompt the RBA to cut the cash rate in February.

The RBA meeting was held the day before the release of September-quarter GDP data, Thieliant said.

"The fact that consumption recorded the smallest increase since the global financial crisis should have rattled policymakers," he said.

New Zealand business confidence rose to its highest level since October 2017 in ANZ Bank's latest survey, although the headline number remained in negative territory with a net 13 per cent of businesses expecting general economic conditions to worsen in the next 12 months.

However, a net 17 per cent anticipate an improvement for their own businesses in the coming year, the highest reading since April 2018, and an increase from 13 per cent in the November survey.

The New Zealand dollar was trading at 96.05 Australian cents from 95.72, at 49.62 British pence from 49.44, at 59.19 euro cents from 59.21, at 72.26 yen from 72.33 yen and at 4.6170 Chinese yuan from 4.6148.

The two-year swap rate nudged up to a bid price of 1.2125 per cent from 1.2100 yesterday while 10-year swaps fell to 1.6775 per cent from 1.6850 per cent.