Kiwi up against Aussie as rate cut doubts rise

The New Zealand dollar rose against the Australian currency as traders became less certain that the Reserve Bank will cut interest rates next week and after Australia’s central bank cut its growth and inflation forecasts.

The kiwi was trading at A92.46c at

5.05pm yesterday from A92.08c at 7.50am. It was unchanged at US63.63c, but well down from the close last Friday of US64.26c.

The market has gone from Thursday, when it was pricing in about a 65 per cent chance of a cut, to about a 55-57 per cent chance now, says Tim Kelleher, head of foreign exchange sales at Commonwealth Bank of Australia.

At the beginning of the month, just about everybody was expecting the RBNZ to cut the OCR to 0.75 per cent from 1 per cent. But doubts have been growing, especially since one of the four major banks, Westpac, is now forecasting no change.

But then third-quarter inflation was stronger than the RBNZ expected, the exchange rate is about 4 per cent lower than in August when the RBNZ delivered its previous monetary policy statement, export commodity prices have risen a little and unemployment has remained lower than the Reserve Bank expected.

ANZ chief economist Sharon Zollner is sticking to her guns, predicting not only a 25 basis point cut next Wednesday, but also two more cuts in February and May next year, taking the OCR to just 0.25 per cent.

The kiwi was trading at 49.66 British pence from 49.63, at 57.58 euro cents from

57.59, at 69.49 yen from 69.63 and at 4.4393 Chinese yuan from 4.4399. The tradeweighted index was at 70.09 points from

70.05. The two-year swap rate edged up to a bid price of 1.0490 per cent from 1.0203 per cent on Thursday.