Australian dollar climbs higher despite NZ rate cut

The New Zealand dollar lost more than 1 per cent on the rate cut move, dragging the Aussie with it part of the way. Photo: Dominic LorrimerThe Australian dollar climbed higher on Thursday after a rollercoaster ride that included a 1 per cent dive after another interest rate cut in New Zealand.
Nanjing Night Net

In late local trade the Aussie was fetching US70.14¢, compared with US69.63¢ at the same time on Wednesday and about US70.20¢ before the Reserve Bank of New Zealand early on Thursday cut the official cash rate for the third time in three policy meetings.

The RBNZ also downgraded its growth forecasts for the country and kept the door wide open for further easing this year.

The New Zealand dollar lost nearly 2 per cent on the move, dragging the Aussie with it part of the way, to an intraday low of US69.46¢.

However, the local unit recovered territory after the Australian Bureau of Statistics reported a small drop in the official unemployment rate, to 6.2 per cent in August from 6.3 per cent in July.

Traders had been braced for a statistical blip in the notoriously volatile jobs data, after officials had warned that the unemployment rate could spike to 6.5 per cent in August because of tougher rules on access to unemployment benefits. In the end, this did not materialise.

The RBNZ cut was widely expected, and came in response to slowing growth in the country because of a slump in the price of dairy products, New Zealand’s principal export, and weaker construction activity.

Resources and agriculture exporters’ currencies have been under heavy pressure in recent months amid weak prices, concerns about China’s slowing growth and expectations of an interest rate rise in the US.

The Bank of Canada this week opted to hold rates at 0.5 per cent, despite recession and ongoing concerns about demand from China.

Although Australia’s growth rate has slowed, Thursday’s in-line headline unemployment rate and better than expected jobs growth of 17,400 strengthened the case of those who expect the Reserve Bank of Australia to hold the cash rate at 2 per cent for the foreseeable future.

Any further cuts to the cash rate, especially as the US Federal Reserve prepares to lift rates for the first time in nine years, could drive the Aussie down towards US60¢, economists say.

Both the Commonwealth Bank of Australia and Westpac this week slashed their forecasts for the Aussie, to US66¢ by year-end, according to estimates compiled by Bloomberg. The CBA said on Thursday that the weaker dollar and steady jobs market meant the RBA would not need to cut rates again.

“Overall, Thursday’s resilient jobs number bolsters our view that the RBA will probably not cut rates again this cycle and that the current 2 per cent will be the low point,” said senior economist John Peters.

However, others weren’t as upbeat, suggesting further softness in domestic and global demand could arrest jobs growth or even drive the unemployment rate higher.

“The slowdown in GDP growth to its weakest in over four years in the second quarter suggests that a cooling of employment growth may still lie ahead,” said Capital Economics senior Asia economist Daniel Martin.

“But the Reserve Bank of Australia is unlikely to cut rates until it sees a turn in the labour market data.”

This story Administrator ready to work first appeared on Nanjing Night Net.

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