Bloomberg News

N.Z. Dollar Drops on Slowing Inflation; Aussie Holds Gain

October 16, 2012

New Zealand’s dollar fell against all of its major peers after data showed inflation slowed to the weakest pace in more than 12 years, boosting speculation that the country’s Reserve Bank will cut interest rates.

The Australian dollar maintained a gain from yesterday even after minutes of the nation’s central bank meeting this month showed officials saw scope to lower borrowing costs further to bolster an economy facing slower growth. The South Pacific nations’ currencies were supported as Asian stocks advanced, boosting demand for higher-yielding assets.

“The market is going to think that the RBNZ will cut” because data showed slower growth in inflation, said Andrew Salter, a currency strategist in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ) “That means that the currency should be weaker.”

The New Zealand dollar, nicknamed the kiwi, dropped 0.3 percent to 81.59 U.S. cents as of 4:40 p.m. in Sydney. It was unchanged at 64.38 yen from yesterday’s close. Australian’s dollar fetched $1.0267 from $1.0253, after gaining 0.2 percent yesterday. The so-called Aussie rose 0.5 percent to 81.01 yen.

The MSCI Asia Pacific Index of shares gained 0.8 percent.

New Zealand consumer prices rose 0.8 percent in the third quarter from a year earlier, the statistics office said in Wellington today. That was the lowest level since the fourth quarter of 1999.

Swap Rate

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, declined seven basis points, or 0.07 percentage point, to 2.51 percent. It earlier touched 2.5 percent, the lowest level since June 7. Swaps are often used to speculate on changes in interest rates.

The RBNZ has kept the official cash rate at a record low of 2.5 percent since March 2011 and last month signaled no change in borrowing costs until late 2013.

The Reserve Bank of Australia today released records of its meeting on Oct. 2 when policy makers cut the overnight cash rate target by a quarter point to 3.25 percent.

“There was an increased likelihood of growth over the coming year being somewhat weaker than earlier forecast,” according to the minutes that explained the board’s decision to cut interest rates. “The board judged that it was appropriate for the stance of monetary policy to be a little more accommodative.”

Interest-rate swaps data compiled by Bloomberg show traders see an about 84 percent chance the RBA will slash the key rate by another quarter point to 3 percent at a meeting on Nov. 6.

“A lot of rate cuts have been priced into the markets already,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore. “There is still a good chance that the RBA will cut rates next month, but they are more likely to wait and see how the economy will respond to the policy easing rather than continuing to cut rates from that point onwards.”

Yields on Australian’s benchmark 10-year bonds were little changed at 3.03 percent. They touched 2.91 percent on Oct. 3, the lowest since July 27.

To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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