The New Zealand dollar slipped again on Tuesday after the central bank took fresh steps to rein in the country's red hot housing market, reinforcing speculation it will cut rates in August. The New Zealand dollar fell 1.14 percent on Tuesday to $0.7035, its fifth straight day of weakness. The Reserve Bank of New Zealand (RBNZ) raised deposit requirements for mortgage borrowers on Tuesday and said it was still working on potential limits to high debt-to-income ratio lending.
"With new steps underway to deal with booming house prices, the market now sees a greater chance of interest rate cuts by the RBNZ," said Westpac Bank. New Zealand government bond gained, sending yields 7 basis points lower across the curve. The Australian dollar fell in sympathy with its New Zealand counterpart. The Aussie slipped further after Australia's central bank left the door open to a policy easing in minutes of its July board meeting.
The Reserve Bank of Australia is watching data on inflation, jobs and housing to determine whether it needs to change policy again, the minutes showed. "We've been expecting a rate cut in August and the minutes today have kept the door open for that. So the currency has obviously reacted accordingly," said J.P. Morgan economist Ben Jarman. Australian government bond futures were firmer, with the three-year bond contract up 3 ticks at 98.520. The 10-year contract rose 5 ticks to 98.045.
New Zealand's official cash rate is at a record low of 2.25 percent. Prior to Tuesday, economists had said the chances of a rate cut in August were high, but the hyperactive housing market could stay the central bank's hand. News of the RBNZ deposit-hiking measure only heightened dovish expectations ahead of an updated economic outlook due from the central bank on Thursday.
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