By Paul McBeth
The New Zealand dollar rose against the Australian dollar after the Reserve Bank of Australia cut its target cash rate a quarter-point to 4.5 percent, trimming the yield appeal of its trans-Tasman counterpart.
The kiwi rose to 76.98 Australian cents from 76.66 cents immediately before the RBA’s statement, and was up from 76.88 cents yesterday. It traded at 80.77 US cents at 5pm from 81.14 cents at 8am and was down from 80.98 cents yesterday.
RBA Governor Glenn Stevens said inflation concerns had given the board a bias to tighten monetary policy, but now it will take a more neutral stance in future reviews as those fears ease. Financial markets have regained some stability, but it will be some time before Europe’s sovereign debt concerns will be laid to rest, Stevens said in his statement.
“It sounds like they’re moving to a neutral stance now, and the 4.5 percent would be regarded as a neutral influence on mortgage rates,” said Chris Tennent-Brown, FX economist at Commonwealth Bank in Sydney. Australia “has quite a hefty interest rate advantage over New Zealand” and it would take more than one cut by the RBA to turn that around, he said.
That comes a week after New Zealand’s central bank Governor Alan Bollard kept the official cash rate at a record-low 2.5 percent as the heightened volatility in global financial markets holds back the local recovery.
New Zealand commodity prices extended their decline for a fifth month in October in their biggest drop since February 2009, according to the ANZ Commodity Price Index. Falling prices for dairy products and kiwifruit weighed on the barometer of locally produced raw materials.
Still, tepid wage inflation will help stay Bollard’s hand from hiking New Zealand’s interest rates in the immediate future, with the labour cost index rising 0.6 percent in the third quarter, ahead of Thursday’s household labour force survey.
That’s expected to show the jobless rate fell to 6.4 percent in the quarter from 6.5 percent in the three months ended June 30, according to a Reuters survey of economists.
The kiwi dollar took a knock against the greenback yesterday after the Bank of Japan intervened in an effort to weaken its own currency from post World War II highs. The New Zealand dollar spiked against the yen, and recently traded at 63.14 yen from 64.10 yen yesterday.
It rose to 58.31 euro cents from 57.73 cents yesterday, and slipped to 50.25 British pence from 50.70 pence.
The trade-weighted index was little changed at 70.38 from 70.44.