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NZ dollar jumps vs. A$ on increased prospect of RBA rate cut

NZ dollar jumps to three-month high vs. Aussie as chance of RBA rate cut increases

By Tina Morrison

July 4 (BusinessDesk) - The New Zealand dollar surged to a three-month high against its Australian counterpart, hovering just under 94 Australian cents, as expectations rise that the Australian central bank may reduce interest rates.

The kiwi touched 93.95 Australian cents overnight, its highest since March 27, and was trading at 93.56 cents at 8am in Wellington, from 93.45 cents at 5pm yesterday. The local currency slipped to 87.51 US cents from 87.67 cents yesterday after a report showed the US added 288,000 jobs last month, beating expectations for an additional 215,000 jobs and boosting optimism about a revival in the world's largest economy.

The Australian dollar declined after weaker than expected retail sales data and following dovish comments by Reserve Bank of Australia governor Glenn Stevens who said yesterday the Aussie was overvalued "and not by just a few cents" and that investors were underestimating the probability of a "significant fall" in the currency at some point. Stevens said the RBA "still has ammunition on interest rates", prompting traders to increase their expectations for a 25 basis point cut in interest rates to 60 percent from around 30 percent previously, according to Bank of New Zealand.

"He was stronger in talking down the currency and he also hinted that they wouldn't rule out interest rate cuts," said Imre Speizer, Westpac Banking Corp senior market strategist. "Those two things are clearly going to push down the Aussie so therefore kiwi/Aussie has to rise. It looks like it could go further still."

Speizer said the kiwi/Aussie cross rate may reach 94 cents but might struggle beyond that level.

Today, the Reserve Bank of Australia's head of financial stability, Luci Ellis, is scheduled to speak to the 2014 Economic and Social Outlook Conference in Melbourne.

US Markets are closed for Independence Day.

The New Zealand dollar advanced to 64.31 euro cents from 64.21 cents yesterday after European Central Bank president Mario Draghi affirmed the bank's low interest rate policy.

The kiwi edged lower to 51.02 British pence from 51.08 pence yesterday and advanced to 89.41 yen from 89.28 yen. The trade-weighted index was little changed at 81.49 from 81.47 yesterday.

(BusinessDesk)

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