Kiwi Dollar Parity Dream on Ice

THE chance of parity between the Australian dollar and its Kiwi rival is fast dissipating, with the Reserve Bank of New Zealand signalling it may be preparing to cut rates.

Kiwi Dollar

The Australian dollar spiked to $NZ1.0515, up 0.8 per cent, in early trade on Thursday. Just last Tuesday, it was trading as low as $NZ1.0039.

It traded at $NZ104.89 in late trade on Thursday. However, a strong week-long rally in the price of iron ore and a weaker-than-expected inflation reading in New Zealand had seen the Aussie gain back ground.

On Thursday morning, the RBNZ left rates on hold at 3.5 per cent but in its statement shifted from a neutral bias to one of easing. “The bank expects to keep monetary policy stimulatory and is not currently considering any increase in interest rates,” RBNZ governor Graeme Wheeler said, adding, “It would be appropriate to lower the OCR [official cash rate] if demand weakens and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target.”

But NAB senior economist David de Garis said the New Zealand dollar’s reaction was a knee-jerk response to the RBNZ continuing to say that the Kiwi currency is overvalued and that they’d need more evidence before they could ease. “Even so, the easing bias is still there, as it was in RBNZ’s McDermott’s recent speech, and has been latched on by the flightless bird that’s softened.”

The head of Asia-Pacific research at TD Securities, Annette Beacher, said she expects the RBNZ to stay on hold for some time as data would need to disappoint to force a cut.

“Perhaps today’s dove-ish bias is merely another way of jawboning the currency lower as the USD remains stubbornly and unexpectedly weak.

“We expect the markets to shift towards a rate cut in June, keeping the New Zealand dollar and rates under pressure, and today’s market reaction will be welcomed by the RBNZ – if not by us,” Ms Beacher said.