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All.BizUnited KingdomNewsEconomyAustralian dlr dampened by flood tax, NZ$ firm

Australian dlr dampened by flood tax, NZ$ firm

27 Jan 2011 08:38 | Economy

The Australian dollar was robbed of early gains on Thursday after news of a new tax to pay for flood damage was seen further lessening the need for higher interest rates in coming months.

The New Zealand dollar fared better after the Reserve Bank of New Zealand said rates there were still likely to rise over the next couple of years, though it would wait for concrete signs of recovery before moving.

The Aussie dollar slipped to $0.9960 from an early high of $1.0002, to stand little changed on the day. The kiwi held up at $0.7722 , after rising from around $0.7650, and gained on the Aussie to NZ$1.2890 .

Australian Prime Minister Julia Gillard said the new income tax would last for a year and raise A$1.8 billion to pay for rebuilding after devastating floods.

"The levy will put even more strain on households' disposable incomes, which already are under pressure from higher interest rates, and rising food, utility, and petrol prices," noted Helen Kevans, an economist at JPMorgan.

"Setting monetary policy, therefore, will be increasingly challenging for the RBA, but we maintain that the tightening cycle will resume this year, even though the floods probably have delayed the next rate move."

Investors had already pushed out the likely timing of any hike following surprisingly benign inflation figures out this week. Now, interbank futures as far out as November all firmed as they further pared the probability of a move.

The market has 23 basis points of tightening priced in for the next 12 months, compared to 35 basis points at the start of this week .

The RBA holds its monthly policy meeting on Tuesday and is almost certain to keep rates at 4.75 pct as it assesses the impact of the floods. The central bank also releases its quarterly statement on monetary policy on Friday .

Australian bond futures pared their losses with the three-year contract down 0.01 points at 94.88 and the 10-year contract off 0.030 points at 94.450.

New Zealand government debt prices fell while bank bills rose after the RBNZ's policy statement, which was a touch more upbeat on the outlook than many had expected.

"The market took that as rate hikes may be slightly early than later, and they bought the kiwi on it," said Tim Kelleher, CBA vice president of institutional banking and markets.

Earlier both currencies had posted gains after the U.S. Federal Reserve reiterated its commitment to quantitative stimulus, boosting risk trades in equities and commodities.


Source:  indiatimes

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