The New Zealand dollar rose to a record against the Australian dollar on speculation the Reserve Bank of Australia will cut interest rates again as soon as next week, while the price of iron ore, a key export, continues to slide.
The kiwi dollar rose as high as 98.43 Australian cents, and was recently at 98.01 cents, up from 97.53 Australian cents late yesterday. The local currency fell to 74.93 US cents from 75.39 cents. The trade-weighted index fell to 78.75 from 78.95.
Australian media reports from RBA watchers cite the prospect of a rate cut after the central bank's April 7 board meeting, potentially pushing the cash rate down a quarter point to a new record low 2 per cent. Prices of iron ore have tumbled to the lowest in six years, while coal prices remain weak, weighing on Australia's resources sector and suggesting "there is plenty of pressure for the RBA to press forward with another rate cut, Rabobank currency strategist Jane Foley was reported as saying.
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"As the market has moved to factor in greater prospect of an RBA rate cut next week, the NZD/AUD cross has pushed up to new highs," said Kymberly Martin, a strategist at Bank of New Zealand. "The market now prices almost a 70 per cent chance of an RBA cut next week and a total of 62 basis points of cuts by this time next year."
Martin said in the of face of divergence in the policy position of central banks in Australia and New Zealand, and the move in the cross rate, the spread between the two countries' two-year swap rates has widened out to 160 basis points, the widest since August 2007.
Traders will be watching today for the ANZ Business Outlook for an update of confidence among New Zealand companies.
Further ahead this week, the US is scheduled to release its PMI and ISM manufacturing surveys for March, as well as ADP private payrolls figures, which are a precursor to the official payrolls data on Friday. The world's biggest economy probably stacked on 260,000 jobs this month, while the jobless rate fell to 5.4 per cent from 5.5 per cent, UBS economists forecast, while manufacturing probably remained in expansion.
Last week Fonterra said it would add 12,140 tonnes of powder to the GlobalDairyTrade auction over the next 12 months, with 90 per cent of the increased volume added in the coming three months. Most of the increase was in whole milk powder, with an additional 6,230 tonnes added over the next three months, it said. Whole milk powder futures dropped on the NZX following the announcement. The GDT auction results will be released in the early hours of Thursday morning, NZ time.
The kiwi fell to 50.63 British pence from 50.73 pence yesterday and slipped to 69.26 euro cents from 69.37 cents. It traded at 89.98 yen from 89.86 yen.