NZ dollar extends gains vs. Australian dollar before RBA minutes; FOMC looms

The New Zealand dollar extended its rally against its trans-Tasman counterpart as the divergence between the neighbouring economies makes local interest rates more attractive, ahead of tomorrow’s release of minutes to the last Reserve Bank of Australia policy meeting.

The kiwi rose as high as 92.49 Australian cents, the highest since October 2008, trading at 92.40 cents at 5pm in Wellington from 92.26 cents on Friday in New York. The local currency traded at 82.78 cents from 82.56 cents at 8am and 82.63 cents on Friday in New York.

The New Zealand dollar has been making fresh five-year highs against its Australian counterpart as the slowing economy in Australia and burgeoning local recovery underline the different stages of the interest rate cycle each nation’s central bank is in.

New Zealand’s Reserve Bank is keen on hiking rates next year, while Australia’s is sitting on record-low rates to keep the stimulus coming. Investors will be looking to see any hint of an easing bias when the minutes to this month’s RBA policy meeting are released tomorrow.

“Their central bank is quite determined to get the Aussie dollar lower to get a more sustainable mix in their economy,” said Dan Bell, head of corporate sales at HiFX in Auckland. “It looks like the kiwi/Aussie could get up to the 95 cent level” over the next month before it “runs out of puff,” he said.

The major event this week will be the Federal Open Market Committee on Wednesday in Washington, with about a third of the market pricing in a scaling back of the central bank’s asset purchase programme. If that happens, the kiwi should lose ground against the greenback, Bell said.

The kiwi fell to 85.04 yen at 5pm in Wellington from 85.31 yen on Friday in New York, and was little changed at 60.16 euro cents from 60.19 cents. It traded at 50.78 British pence from 50.73 pence last week. The trade-weighted index was almost unchanged at 77.92 from 77.90.


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