Kiwi dollar hits three month high against Aussie

The New Zealand dollar rose to a three-month high against its Australian counterpart as the gap between monetary policy settings in the two countries looks set to close.

Tuesday, October 20th 2020, 6:47PM

by BusinessDesk

The kiwi dollar was trading at 93.41 Australian cents at 5pm in Auckland, up from 93.30 yesterday and at its highest level since late July.

Reserve Bank of Australia assistant governor Chris Kent caught market traders' attention today after he said the bank was looking to do more quantitative easing in an effort to catch up with more dovish monetary policy in other economies.

“That’s weighed heavy on the Aussie dollar, and so we’ve seen the kiwi appreciate against it as a result,” said Mike Houlahan, a senior corporate dealer at XE.

RBA minutes said the smaller expansion of its balance sheet, compared to other central banks, had contributed to the stronger exchange rate.

A note from Capital Economics’ Ben Udy said the bank was now expected to cut rates to 0.1 percent and launch more quantitative easing at its November meeting.

Meanwhile, it is looking increasingly less likely the Reserve Bank of New Zealand will cut rates below zero, with some economists saying it may not be necessary with the economy already showing signs of recovery.

“The economic data from New Zealand has been quite a lot better. So, there are question marks being raised about whether our Reserve Bank will go to negative rates,” said Houlahan. The kiwi dollar was trading 65.83 US cents at 5pm in Wellington, down from 66.13 yesterday and a high of 66.42 around midnight.

Houlahan said the move reflected the ebb and flow of expectations that US lawmakers would agree to a fiscal stimulus plan for the American economy.

“The US share market looked a bit optimistic last night, but as comment came in that the deal looked unlikely the market suddenly turned south and that has flowed into the currency markets in Asia,” he said.

The three main US equity indices closed at least 1.5 percent lower, causing other Asian indices to also post falls.

However, NZ’s benchmark index outperformed the region, gaining more than half a percent as electricity stocks recovered from several days of selling.

The S&P/NZX 50 Index rose 76.8 points, or 0.6 percent, to 12,462.05. Within the index, 35 stocks rose, 13 fell, and two were unchanged. Turnover was $178.2 million.

Vector was up 2.6 percent at $4.39, Genesis Energy climbed 2.1 percent to $3.185, Contact Energy rose 2 percent to $7.71 and Meridian Energy advanced 1.8 percent to $5.55.

Mercury Energy declined 0.4 percent to $5.28 after reporting industrial demand has fallen 0.6 percent. This is due to the shutdown of the fourth potline at the Tiwai Point aluminium smelter and reduced activity at the Marsden Point oil refinery.

However, the company also noted longer-term future prices increased during the quarter as the market appeared to speculate on the likelihood of the Tiwai smelter extending its operational life.

Fonterra Shareholders’ Fund Units rose 1.5 percent to $4.16, Skellerup Holdings advanced 1.4 percent to $2.94, Fisher & Paykel Healthcare was up 0.8 percent at $35.53 and A2 Milk Company advanced 0.5 percent to $15.78.

Exporters seemed to welcome the improved exchange rate with New Zealand’s biggest trading partner, Australia, although the strong US dollar pulled the trade-weighted index lower.

The TWI was at 70.80 at 5pm, from 71.41 yesterday. The kiwi traded at 69.47 yen from 69.72 yen, 55.90 euro cents from 56.48 cents, 50.83 British pence from 51.14 pence, and 4.3971 Chinese yuan from 4.4270 yuan.

Serko led the market higher, rising 3.6 percent to $5.21, and Tourism Holdings was up 2.6 percent at $2.40.

Fletcher Building posted the day’s biggest decline, falling 2.5 percent to $4.22.

Tags: Market Close