New Zealand’s dollar strengthened against its Australian counterpart on prospects the bigger nation’s central bank will cut interest rates next month.
The so-called kiwi climbed against all of its 16 major peers after the Reserve Bank of New Zealand left the benchmark rate unchanged, citing benign inflation. The Australian currency, nicknamed the Aussie, advanced against the U.S. dollar after Federal Reserve Chairman Ben S. Bernanke said the Fed stands ready to introduce more stimulus measures if necessary.
“Compared to the Aussie, we’re seeing a bit of resilience” in the kiwi, said Lee Sue Ann, a Treasury economist at United Overseas Bank Ltd. (UOB) in Singapore. Unlike the Reserve Bank of Australia, which is “looking at rate cuts, in New Zealand, we’re looking for a rate hold.”
The New Zealand currency gained 0.3 percent to NZ$1.2690 per Australian dollar as of 4:24 p.m. in Sydney after having lost 0.4 percent in the past three days. It climbed 0.6 percent to 81.86 U.S. cents. The Aussie added 0.3 percent to $1.0386. Two-year swap rates in the smaller nation slid as much as 9.7 basis points to 2.7584 percent, the lowest since Feb. 2.
The MSCI Asia Pacific Index of shares advanced 0.5 percent, boosting the relative allure of higher-yielding currencies.
The RBNZ left its official cash rate at 2.5 percent at a policy meeting today.
“The New Zealand dollar has stayed elevated despite recent falls in commodity prices,” Governor Alan Bollard said in a statement. “Should the exchange rate remain strong without anything else changing, the bank would need to reassess the outlook for monetary policy settings.”
New Zealand’s dollar has gained 3 percent this year, the best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The Aussie has lost 0.9 percent.
“Today’s comments suggest that the RBNZ may now be comfortable with a strong New Zealand dollar, should N.Z. commodity prices recover and domestic growth pick up,” Hamish Pepper and Olivier Desbarres, currency strategists in Singapore at Barclays Plc, wrote in a research note.
Traders are betting the Reserve Bank of Australia will definitely cut its benchmark rate from 4.25 percent at its next meeting on May 1, according to a Credit Suisse Group AG gauge based on swaps.
An index of Australian leading economic indicators was unchanged in February after gaining 1 percent the prior month, the New York-based Conference Board said today.
Fed policy makers upgraded their U.S. growth projection this year while repeating their view that borrowing costs are likely to remain “exceptionally low” at least through late 2014. They now forecast the economy will grow as much as 2.9 percent, compared with a January estimate of 2.7 percent.
“We remain prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target,” Bernanke said at a press conference following a two- day meeting of the Federal Open Market Committee.
The central bank bought $2.3 trillion of bonds in two rounds of so-called quantitative easing between December 2008 and June 2011. It has kept its benchmark interest rate at zero to 0.25 percent since December 2008.
A third round of quantitative easing is “on the table,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “That’s a positive” for the Aussie and kiwi, he said.
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