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NZ dollar holds near parity with Australian dollar, may breach if RBA cuts rate

07 Apr 2015

The New Zealand dollar traded near parity with the Australian dollar and may break through A$1 should the Reserve Bank of Australia cut its cash rate as expected today.

The kiwi was at 99.37 Australian cents as at 8:30am in Wellington, having risen to as high as 99.78 cents from 99.63 cents in late Asian trading yesterday. The local currency traded at 75.50 US cents from 76 cents yesterday.

Traders see a 75 percent chance that Australia's central bank will cut its cash rate a quarter point to a record low 2 percent after its meeting today, to revive an economy hurt by a slump in iron ore and coal prices and a downturn in resources sector investment. That would widen the gap with New Zealand's official cash rate to 1.5 percentage points, lifting the appeal of the kiwi dollar.

"Should the RBA cut its policy rate today, it seems highly likely that parity will be hit," Raiko Shareef, a strategist at Bank of New Zealand, said in a note.

The kiwi dollar surged in the US on Friday after Department of Labor figures showed the world's biggest economy added 126,000 jobs in March, well below expectations of a 245,000 increase and the weakest since the end of 2013. The unemployment rate was unchanged at 5.5 percent. Still, in trading today, the kiwi gave up much of its gains against the greenback.

Shareef said the recovery in the greenback today was "on some flow-driven, liquidity-impaired appetite to buy US dollars."

"There were few, if any, redeeming features of the US employment report," he said. "The shunt lower in the US dollar put it on the cusp of breaking some significant technical levels, which might have seen the move extend."

The kiwi traded at 69.04 euro cents from 69.20 cents late yesterday ahead of a deadline at the end of the week for Greece to pay 450 million euros owed to the international Monetary Fund.

The kiwi was at 90.21 yen from 90.45 yen and traded at 50.69 British pence from 50.92 pence. The trade-weighted index was at 79.05 from 79.53 yesterday.

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