The New Zealand dollar held above 98 Australian cents, having earlier touched a post-float high, as the slumping price of iron ore stoked bets the Reserve Bank of Australia will cut interest rates next week to revive a flagging economy.
The kiwi dollar traded at 98.03 Australian cents as at 5pm in Wellington, having risen as high as 98.43 cents overnight, from 97.53 cents late yesterday. The local unit fell to 74.79 US cents from 75.39 cents.
Iron ore with 62 percent content at Qingdao, China, fell to US$52.69 a metric ton on Monday, Bloomberg reported, citing Metal Bulletin data. The price has dropped by more than a quarter this year and is heading toward levels where it becomes uneconomic for Australian miners to dig it out of the ground. There's a 73 percent chance the Reserve Bank of Australia (RBA) cuts the cash rate at its April 7 meeting, based on the Overnight Index Swap curve, with about 60 basis points of cuts priced in over the next 12 months.
"Markets have priced in more easing (by the RBA) than they had even a week ago - in turn that's related to the iron ore price," said Imre Speizer, strategist at Westpac Banking Corp.
With the kiwi dollar now less than 2 Australian cents away from parity with its trans-Tasman counterpart, a likely catalyst for it to go higher would be for the RBA to cut the cash rate by 25 basis points "and leave the door open for more," Speizer said. The market tends to be "running ahead as long as the guidance is there."
The kiwi may trade in a range of 74 US cents to 75.50 cents in the next 24 hours, he said.
Traders are looking ahead to the GlobalDairyTrade auction, with the results released in the small hours of Thursday this week. Fonterra Cooperative Group last week said it will increase volumes of milk powder offered at the auctions this year, which helped drive down whole milk powder futures on the NZX - a sign prices may also fall at the auction.
Speizer said a fall in prices may see a knee-jerk sell off in the kiwi on the day, although offshore events will have more impact longer term.
The US releases non-farm payrolls data on Friday. The world's biggest economy probably stacked on 260,000 jobs this month, while the jobless rate fell to 5.4 percent from 5.5 percent, UBS economists forecast.
The kiwi fell to 50.60 British pence from 50.73 pence yesterday and slipped to 69.30 euro cents from 69.37 cents. It traded at 89.85 yen from 89.86 yen. The trade-weighted index fell to 78.67 from 78.94.