The New Zealand dollar touched a fresh four-month high against the Australian dollar after the Aussie broke through a key support level amid speculation the country's central bank may cut interest rates to bolster the economy.
The kiwi touched 92.40 Australian cents, and was trading at 92.15 cents at 8am in Wellington, from 91.51 cents at 5pm yesterday. The local currency advanced to 78.75 US cents from 78.15 cents yesterday after a slew of disappointing US data weighed on the greenback.
The Aussie fell below a key support level of 85 US cents for the first time since July 2010, touching a low of 84.77 cents, and its decline was hastened by technical selling after it broke below the 200 day moving average. The Australian currency has been under pressure this week, declining sharply after Reserve Bank of Australia deputy governor Philip Lowe warned that the domestic currency remains elevated and a lower exchange rate would be helpful for the economy, adding that low interest rates have been effective and further rate cuts can't be ruled out if the bank needed to again.
"Lowe intimated that the central bank may consider further easing actions if the economy does not pick up pace early next year," Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management, said in a note. "The fall in Aussie however was hastened by momentum selling as the pair broke one key technical support level after another finally crashing through the 8500 (US cents) barrier.
"The events of the past few days have dislodged much of the speculative capital from the currency and helped to accelerate the selling," Schlossberg said. "The decline in the Aussie will be seen as welcome news by the RBA which has been trying to talk the unit down for the better part of this year. The RBA would prefer to see the exchange rate below the 8500 barrier and ideally closer to 8000 in order to adjust Australia's terms of trade and help the ailing resource sector."