NZ dollar rise vs. Australian dollar as Westpac rate hike puts pressure on RBA
By Paul McBeth
Oct. 14 (BusinessDesk) - The New Zealand dollar rose to a four-month high against its trans-Tasman counterpart on speculation mortgage rate hikes by Westpac Banking Corp may put pressure on the central bank to ease policy.
The kiwi rose as high as 92.40 Australian cents, trading at 92.27 cents at 5pm in Wellington from 91.20 cents yesterday. The local currency was little changed at 66.76 US cents from 66.71 cents at 8am and 66.62 cents yesterday.
The Australian dollar dropped after Westpac announced plans to lift its floating mortgage rate by 20 basis points to reflect new risk weightings under a tougher regulatory regime that prompted Australia's second biggest bank to raise more capital. The move prompted traders to increase their bets for another rate cut by the Reserve Bank of Australia to prevent Westpac's move from cooling the housing market and chilling development.
"The move by Westpac in Australia to raise lending rates by 20 basis points immediately led the market to believe that the RBA will be forced to cut rates in the coming months," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "The Australian dollar got sold aggressively and kiwi benefitted from that on the kiwi/Aussie cross."
New Zealand Reserve Bank governor Graeme Wheeler today said more interest rate cuts are likely, depending on the flow of economic data, although he was aware of the risk that cheaper borrowing costs could stoke demand in the property market.
OMF's Ive said if Australia cuts interest rates further, that could put pressure on New Zealand's Reserve Bank to continue easing.
New Zealand's two-year swap rate was unchanged at 2.7 percent at 5pm in Wellington, and 10-year swaps fell two basis points to 3.52 percent.
The New Zealand government returned to an operating surplus in the year ended June 30, with an unexpectedly higher tax take ending a six-year run of deficits. Finance Minister Bill English said he will focus on reducing public debt over the medium-term.
The local currency advanced to 4.2378 Chinese yuan from 4.2213 yuan yesterday after official data showed China's consumer and producer prices were softer than expected in September.
The kiwi was little changed at 79.90 yen from 79.78 yen yesterday, and traded at 58.62 euro cents from 58.65 cents. It was little changed at 43.67 British pence from 43.61 pence. The trade-weighted index advanced to 71.64 from 71.36 yesterday.