7 Apr 2015

NZ dollar traders await key Australia decision

4:01 pm on 7 April 2015

The New Zealand dollar is being tipped to reach parity with the Australian currency this afternoon, when the Reserve Bank of Australia is expected to drop its key interest rate.

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Photo: 123rf

The kiwi is already within a whisker of matching the Australian currency - trading around 99.2 Australian cents after yesterday peaking at 99.78 cents.

The market will be ready to react at 4.30 pm when the Reserve Bank of Australia is widely expected to cut its Official Cash Rate by a quarter of a percentage point to 2 percent, in effort to boost the sluggish economy, across the Tasman.

In New Zealand, the currency is riding high on a relatively strong economy and the Official Cash Rate is on hold at 3.5 percent.

Market experts say New Zealand's high interest rates and strong economy are driving up the currency.

But there is little the Reserve Bank of New Zealand can do, as a red hot housing market keeps it from dropping interest rates in line with Australia or the United States, Canada, Britain and Japan, where the cash rates are less than 1 percent.

Even if the Reserve Bank of Australia keeps the interest rate on hold, it is unlikely to keep the New Zealand dollar down for long.

ASB senior economist Chris Tennent-Brown is not expecting the RBA to cut its key interest rate today, but says the market expects the rate cut will come sooner rather than later.

Some economists say that the RBA could cut interest rates this afternoon or in May.

Chief market strategist at I-G Group in Melbourne Chris Weston was one of those who expect the next cut to come soon.

"I really don't see any reason why they would look to hold off, and I think they need to drive that Aussie dollar even lower than where it is at the moment."

Derek Rankin, a director at Rankin Treasury Advisory, predicts the kiwi could eventually reach $A1.03.

New Zealand's economy is doing better than Australia's, with food exports faring better than Australia's commodities such as iron ore and coal, Mr Rankin told Morning Report.

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