Aussie rate decision drags dollar down

The Reserve Bank of Australia's unexpected decision to keep its official cash rate at the same level saw the New Zealand dollar also dragged against the US greenback this afternoon.

For most of today it held its ground against Uncle Sam following an overnight bounce.

After recording a level of US70.02c at 5pm yesterday, the NZD reached a high of US70.96c during the afternoon before being dragged down to US70.58c at 5pm following news across the Tasman.

Most commentators had expected the Reserve Bank of Australia (RBA) to lift its official cash rate 25 basis points, but it left the rate unchanged at 3.75 per cent at 4.30pm NZT, which saw the Australian dollar dip against other currencies.

"The kiwi has been dragged down with the losses in the aussie but there's been a bit of interest to buy the kiwi against the aussie, and that's just meant the kiwi has tended to underperform on the way down," said BNZ currency strategist Danica Hampton.

The RBA was "a bit disappointing", she said.

Markets were disappointed and the decision not to change the rate saw the Australian dollar fall quite sharply about US1c, from above US89.20c to below US88.20c.

"While the accompanying statement didn't rule out further rate hikes it does suggest we are back to data-watching as to how quickly the RBA needs to remove its monetary stimulus going forward."

The RBA decision saw the kiwi rise to A80.09c at 5pm, from A79.36c at the same time yesterday.

It also rose against the euro, up to 0.5080 from 0.5049, and against the Japanese yen, to 64.04 from 63.12.

Against the British pound, the NZD dropped to 44.31p from 43.95p.

The trade weighted index rose to 65.20 from 64.66.

Meanwhile, in overseas foreign exchanges, stronger-than-expected euro zone PMI data pushed the euro higher on Monday, snapping four straight days of declines, but it hovered close to seven-month lows on concerns over the debt of some euro zone countries.

The dollar steadied but stayed close to a six-month high versus a currency basket after Friday's stronger-than-forecast gross domestic product data indicated the United States was recovering faster than the euro zone and Japan. That helped bolster risk demand.

US President Barack Obama's budget projected a record deficit in 2010, but traders said it had little currency impact. US data on inflation and consumer spending also had little impact.

In early New York trade, the euro traded up 0.4 per cent at $1.3915, but not so far from an earlier low of $1.3854, according to Reuters data, its weakest since early July.

The dollar index, a calculated measure of the greenback's performance against six major currencies, was down 0.2 per cent at 79.264, off an earlier high of 79.534, its strongest since late July.

- NZPA