The New Zealand dollar hit a three-week high against the Aussie after New Zealand's Reserve Bank reiterated that interest rates are expected to remain on hold for "some time", in the same week that Australia cut its rate following moves lower by many other central banks.
The kiwi touched 95.08 Australian cents, and was trading at 94.91 cents at 8am in Wellington, from 94.86 cents at 5pm yesterday. The local currency slipped to 73.68 US cents from 74.05 cents yesterday as commodity currencies declined after oil prices dropped following a report that showed US inventories were at record levels.
Reserve Bank governor Graeme Wheeler, in the bank's traditional scene-setting major speech to start the year, said yesterday that keeping interest rates on hold at 3.5 per cent for now was more prudent than contemplating a cut. That contrasts with the outlook in Australia, where its central bank this week reduced the benchmark rate to a record low 2.25 per cent and where further reductions are expected. Finance Minister Bill English noted this week that 14 central banks have dropped their interest rates over the past couple of weeks.
"In a world where central banks are racing to the bottom to lower interest rates, holding rates is now the 'new hawkish' which will attract investors hungry for yields," Matt Simpson, senior market analyst at ThinkForex in Melbourne, said in a note. "The divergence between the two economies should continue for 'some time' but with the RBA expected to lower rates quite soon, I expect the downside move (in the Aussie) to increase with momentum."
Simpson has previously said he expects the cross rate to reach parity this year.
