AUD/NZD to 4 1/2-Year Low below 1.15 as Rate Bets Diverge

Australia’s dollar touched a 4 1/2-year low versus its New Zealand peer, as the smaller nation’s central bank flagged a need to remove stimulus and drove a divergence in monetary policy prospects for the two countries.

New Zealand’s kiwi dollar rose against all of its 16 major counterparts after Reserve Bank Governor Graeme Wheeler said that a removal of monetary easing “will likely be needed in the future” following a policy review today, prompting bets for an increase in borrowing costs as early as January 2014. The Aussie slid as traders increased bets the Reserve Bank of Australia will cut its overnight cash rate target next month.

“New Zealand’s Reserve Bank has told us that they’re going to tighten explicitly, no ifs or buts, while the RBA remains with an easing bias,” said Imre Speizer, a markets strategist at Westpac Banking Corp. (WBC) in Auckland. “That’s as clear a divergence as you have between two close central banks. The pressure from the markets would be to the upside for the kiwi currency, particularly against the crosses.”


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