The New Zealand dollar was pushed down to key levels after a no-change in Australian interest rates yesterday sparked a sell-off in the Australian dollar.
Tim Robinson of Deutsche Bank said the kiwi was caught in the aussie's backwash after the Reserve Bank of Australia yesterday left interest rates unchanged, leaving many in the market wondering about the Australian economy.
The Australian dollar shed 60 points during the day while the kiwi had a more modest slide, from a high of US44.17c to a low of US43.85c.
Market expectation was fairly evenly divided about what the RBA would do, although the Reserve Bank of New Zealand's decision to hike rates last month was seen as one driver across the Tasman.
"I think they've done the sensible thing in waiting (to raise rates), but the market on the other hand has taken it as a sign that they're uncertain about the economy, about potential issues affecting growth going forward, and has sold aussie dollars," Mr Robinson said.
Many in the market had expected the RBA to begin the tightening cycle. Economists said the decision to leave rates unchanged today all but cleared the way for a move following the next board meeting in May.
The RBA last moved rates in December when they were lowered to 4.25 per cent.
"I think the biggest issue is that the market was very long aussie dollars going into this statement, and it probably would have panned out the same way no matter what happened," Mr Robinson said.
At 5pm the kiwi traded at US43.80c, from Tuesday's US44.15c close, and the aussie was at US52.95c from US53.28c Tuesday night.
"I think we're sitting right on support at the moment, it's fairly crucial levels. Aussie has to hold US52.80c and kiwi has to hold US43.75c - if it goes through those levels, I think we'll see more liquidation of longer-term longs," he said.
On the crosses at 5pm the kiwi traded at A82.73c (A82.86c at Tuesday's close), 0.4987 euro (0.5022), 59.14 yen (58.91), 30.51 pence (30.68) and 0.7292 Swiss francs (0.7343).
The aussie was at $NZ1.2086 ($NZ1.2069).
The monetary conditions index eased to minus 513 (minus 475), the trade weighted index was at 52.95 (53.35), and 90-day bank bills were steady at 5.63 per cent.
On the debt market, the April 2004 bonds were at 6.29 per cent (6.34), the November 2006s at 6.77 per cent (6.83) and the November 2011s at 6.91 per cent (6.97).
- NZPA
<i>Currency:</i> Kiwi tests key support after RBZ leaves rates unchanged
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