Kiwi Dollar Declines Versus Aussie After Touching Five-Year High

New Zealand’s dollar fell against its Australian counterpart from a five-year high after inflation expectations in the smaller nation topped out this quarter, damping the prospects for a rate increase.

The yield on Australia’s benchmark three-year government remained lower after minutes of the Reserve Bank’s Nov. 5 meeting showed policy makers kept the option of reducing rates if needed. Both South Pacific currencies fell against the yen as Asian stocks snapped a three-day advance.

Today’s data suggest that “maybe we are not in as inflationary an environment in New Zealand as what we thought,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. (WBC) in Singapore. Investors taking profit on short Aussie-kiwi positions has “probably been weighing on New Zealand dollar sentiment in the near term.”

New Zealand’s currency fell 0.2 percent to NZ$1.1270 per Aussie as of 3:20 p.m. in Sydney. The kiwi strengthened to as high as NZ$1.1198 yesterday, a level not seen since October 2008. It dropped 0.1 percent to 83.24 U.S. cents. The Australian dollar was little changed at 93.80 U.S. cents.

Inflation will average 2.34 percent in two years time, according to the fourth-quarter survey of business estimates published by the Reserve Bank of New Zealand today. Expectations fell from 2.36 percent in the third quarter, the highest since June 2012.

Australia’s benchmark three-year note yield was little changed at 3.06 percent. It has dropped 11 basis points since Nov. 12.

“Given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady while continuing to gauge the effects, but not to close off the possibility of reducing it further should that be appropriate,” the Reserve Bank of Australia said in the minutes released today.

The MSCI Asia Pacific Index of shares was little changed after climbing 3.2 percent in the past three days. The kiwi slid 0.3 percent to 83.06 yen, while the Aussie fell 0.2 percent to 93.61 yen.

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net

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