The New Zealand dollar continued to slip against the Australian dollar after the Reserve Bank of Australia has indicated it has no plans of cutting interest rates further at its current rate of 2.5 per cent. The news has crushed investors who were hoping for another round of rate cuts.
The Kiwi dollar has slipped to a six-week low at 85.91 cents Australian cents. It opened for trading at Wellington at 86.04 cents from 86.63 cents. The Australian dollar fell to the US dollar at 77.90 US cents down from 78.27 cents.
The New Zealand dollar further weakened against the Australian dollar after the Reserve Bank of Australia has left interest rates on hold and said its current policy was appropriate.
In 2013, the Kiwi dollar gained 6.4 per cent against the Australian dollar as the country is currently in a mining slump that has affected the Australian economy. New Zealand's housing boom may be a reason for the reserve bank to raise interest rates.
ANZ New Zealand senior manager for foreign exchange Sam Tuck said that the markets will need to have an appropriate policy to become a "more neutral bias for the RBA." The Reserve Bank of Australia may be considering that its interest rate cuts are having an impact on the Australian economy.
The New Zealand dollar was also affected by stronger economic data in the US. The US Federal Reserve may be tapering its bond buying programme within the month. Reports in the US showed a growth in the manufacturing industry last August which was said to be the fastest rate in more than two years.
In the latest GlobalDairyTrade auction, dairy prices fell although production went up. This extended the high levels that Fonterra Cooperative Group has maintained since its record sales in August.
Many firms predicted that the New Zealand dollar would climb higher than the Australian and US dollar, and later on peak on March 2014. However, according to the ASB Kiwi Dollar Barometer, the New Zealand dollar will be expected to decline.
The Reserve Bank may increase interest rates as the Kiwi dollar was tipped to trade at 81 US cents in early 2014.
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