WELLINGTON: The Australian dollar fell slightly against the greenback but soared against the New Zealand dollar as the kiwi faces downward pressure from imminent rate cuts.
The Australian dollar was trading around US76.4¢ throughout Thursday, pushed down by another large trade deficit that came on top of positive employment data out of the United States on Wednesday night.
ABS data revealed the trade gap had narrowed in May to $2.75 billion, from a record $4.14 billion in April but the reduction was not as much as expected after significantly lower gold and gas exports.
Despite being the biggest monthly improvement in three years, its impact on the dollar was muted as it only went half of the way to ameliorating the effect of the April losses.
While the Aussie has been tracking downwards against the greenback for months, it continues to soar against the NZ dollar as the country’s central bank prepares for more rate cuts in an attempt to bring the kiwi lower.
On Thursday, the Aussie was buying $NZ1.14, its highest since November 2013, having climbed nearly 14 per cent in less than three months, after the two currencies in April traded within a whisker of parity.
The NZ dollar also fell below US67¢ for the first time in five years on Thursday, as a slide in dairy prices narrowed the odds on more rates cuts. The latest move came after a fortnightly auction held by export giant Fonterra saw average dairy prices fall 5.9 per cent to $US2276 a tonne, their weakest since July 2009.
“There is little on the horizon to suggest there will be a meaningful turnaround in international powder prices any time soon,” analysts at ANZ wrote in a research note. “It is now clear that additional RBNZ monetary policy action – above and beyond previous expectations – is warranted,” they said, adding they expect the Reserve Bank of New Zealand to take the cash rate back to 2.5 per cent, from 3.25 per cent.
Commonwealth Bank analyst Nick Tuffley said he expected the kiwi to keep diving with economists predicting the RBNZ to embark on a series of three cuts of 25 basis points starting this week, mostly due to low confidence caused by oversupply issues plaguing the dairy industry.
“In addition to weak business confidence, consumer and economic confidence in dairy-focused regions is tracking downwards,” Mr Tuffley said.
“Further, overall businesses’ view of their own activity outlook, which can be used as a proxy for growth, fell significantly, indicating the growth is likely to slow over the second half of the year.”
