Kiwi dragged higher by Aussie

The New Zealand dollar continued to track upwards against the greenback in overnight trade, dragged higher by the Aussie which surprised some traders by gaining after yesterday’s interest rate cut.

The kiwi recently traded at US82.40 cents, up from US82.29c at 5pm yesterday, although it was outpaced by the Aussie, falling to 78.60 Australian cents on the cross from A78.73c. On the Trade Weighted Index of major trading partners’ currencies, the New Zealand dollar fell to 73.39 from 73.45.

The surprising rise by the Australasian currencies came after the Reserve Bank of Australia shaved 25 basis points from its interest rate, taking it to 3 per cent, a level last seen in 2009 in the middle of the Global Financial Crisis. While the cut was widely expected, the lack of detail on future policy action was notable, causing some to speculate the bank may not be as dovish as they had been betting.

“The market’s response appears to be one of ‘no news is good news’,” said Kymberly Martin, a market strategist at BNZ. “There may have even been relief from some who had begun toying with the idea of a 50 basis point cut.”

That shifts the attention to the Reserve Bank of New Zealand’s policy announcement tomorrow, where newly its minted governor, Graeme Wheeler, will make his monetary policy debut. He is not expected to move the Official Cash Rate from its historic 2.5 per cent low.

Further afield, global equity markets were mixed overnight with traders sticking to the sidelines as policymakers in Washington dug in their positions on the looming fiscal cliff, a US$600 billion (NZ$727b) package of tax hikes and spending cuts which kick in on December 31.

Closer to home, dairy prices fell 2 per cent at Fonterra’s latest GlobalDairyTrade auction, although Martin said the price action was “within the bounds of fluctuation”.

On the crosses, the New Zealand dollar opened at 67.41 yen, down from 67.57 yen, it fell to 62.92 euro cents from 62.99 euro cents, and rose to 51.16 pence from 51.09p.