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NZ dollar gains after RBA cuts interest rates

NZ dollar gains after RBA cuts interest rates in a bid to revive slowing economy

By Paul McBeth

Dec. 4 (BusinessDesk) - The New Zealand dollar followed its Australian counterpart higher after the Reserve Bank of Australia cut interest rates to a level not seen since 2009 in a bid to revive economic activity as the resources boom peters out.

The kiwi rose to 82.29 US cents at 5pm in Wellington from 82.04 cents immediately before the RBA announcement, and was up from 82.10 cents at 8am and 81.95 cents yesterday. The Australian dollar jumped to US$1.0446 at 5pm in Wellington from US$1.0417 immediately before the release.

The RBA board cut the target cash rate a quarter point to 3 percent, as expected, in a bid to "foster sustainable growth in demand and inflation outcomes consistent with the target over time," governor Glenn Stevens said. The RBA has started seeing signs of easier monetary conditions emerge, though the Australian dollar was still higher than expected, and Stevens said the resources boom is near its peak.

The currency price action "was pretty unusual - there was nothing in the commentary to suggest they're done" cutting rates, said Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. "Ultimately, I expect the Aussie to drift back to pre-announcement levels and the kiwi dollar as well."

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 percent. That would cut Australia's interest rate advantage to half a percentage point.

"With the housing backdrop, there's very little chance the RBNZ's going to cut now or subsequently unless the offshore stuff takes a real turn for the worse," Tennent-Brown said.

New Zealand commodity prices rose 1 percent for a fourth straight month in November, according to ANZ New Zealand figures. That comes a day after government figures showed the country's terms of trade fell to a three-year low in the September quarter as a strong currency eroded returns on dairy exports.

The kiwi was little changed at 78.73 Australian cents at 5pm in Wellington from 78.68 cents yesterday.

RBNZ's Wheeler was drawn into local politicking by the Green Party today, scotching claims the central bank has a bias towards the Australian lenders without directly addressing accusations he misled Parliament over the banks' returns.

New Zealand's currency was little changed at 67.57 yen from 67.53 yen yesterday, and increased to 62.99 euro cents from 62.84 cents. It was unchanged at 51.09 British pence, and gained on a trade-weighted basis to 73.45 from 73.32 yesterday.

(BusinessDesk)

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