NZ dollar rises to new 5-year high vs. Australian dollar on dovish RBA
By Jonathan Underhill
July 30 (BusinessDesk) – The New Zealand dollar rose to a new five-year high against its Australian counterpart after
Reserve Bank of Australia governor Glenn Stevens said there is room both for his currency and interest rates to go lower
in the face of subdued domestic demand.
The New Zealand dollar climbed as high as 88.11 Australian cents after Stevens gave his speech titled ‘Economic Policy
after the Booms’, from 87.53 cents immediately before and from 87.27 cents the previous day. The kiwi traded at 79.89 US
cents from 80.31 US cents at 8am in Wellington and from 80.78 cents a day earlier.
Stevens told the Anika Foundation charity lunch in Sydney that the recent decline in the Australian dollar “seems to
make sense from a macroeconomic perspective" and “it would not be a major surprise if a further decline occurred over
He also said the central bank has “ammunition” to make a policy response to a weak economy, suggesting he is comfortable
cutting interest rates further and potentially adopting unconventional macro-prudential tools. The speech underlines
that the Australian economy is in a different stage of its cycle rom New Zealand’s, where the central bank has signalled
rates will need to rise, narrowing the gap and yield appeal of the Aussie.
“Clearly the world was surprised at the degree of dovishness, talking down the currency and throwing in there the
potential to ease rates a lot further,” said Imre Speizer, senior currency strategist at Westpac Banking Corp.
“The Australian economy isn’t going into recession or anything like that – they are just coming off a high,” Speizer
said. “They’re hoping the domestic economy takes the place of the winding-down resources sector and they’re in a little
bit of a transitional zone.”
Speizer said he has revised up his target for the kiwi against the Australian dollar to 91 Australian cents ahead of his
bank’s official upgrade.
Helping to illustrate the difference in the two economies, New Zealand economic figures showed new home building
consents were at a five-year high in the second quarter, though the growth was mainly driven by a surge in April, with
consents falling in June.
The kiwi traded at 78.55 yen from 78.52 yen this morning and 79.02 yen the previous day and fell to 60.29 euro cents
from 60.83 euro cents yesterday. It dropped to 52.13 British pence from 52.51 pence. The trade-weighted index fell to
75.55 from 75.93.