The New Zealand dollar followed its Australian counterpart higher after the Reserve Bank of Australia cut interest rates in line with expectations and soothing fears the world's 12th biggest economy could be in for a big fall as its mining boom peaks.
The kiwi increased to 82.43 US cents at 8am in Wellington from 82.29 cents yesterday, following the Australian dollar's lead, which rose to US$1.0472 from US$1.0446. The kiwi was little changed at 78.68 Australian cents from 78.73 cents yesterday.
The RBA cut the target cash rate a quarter point to 3 per cent, the lowest level since the depths of the global financial crisis and matching a five-decade low. Governor Glenn Stevens said the bank has started seeing signs of looser monetary policy emerge, and was seen as a move to foster growth outside the resources sector which has underpinned the economy in recent years. Government figures today are expected to show the Australian economy grew 0.6 per cent in the September quarter.
"The accompanying statement highlighted the negatives, but there were no new negatives and markets are in the mood to take no news as good news," said Kymberly Martin, strategist at Bank of New Zealand in Wellington. "If the RBNZ comes out (tomorrow) and points to the obvious things about the economy and provides no new fears, we might have a similar reaction."
The RBA's review comes two days before the Reserve Bank of New Zealand reviews monetary policy, with governor Graeme Wheeler tipped to keep the official cash rate on hold at 2.5 per cent. That would cut Australia's interest rate advantage to half a percentage point.
