NZ dollar heads for 2 percent weekly gain vs. A$ amid divergent trans-Tasman economies

Friday 17th January 2014

The New Zealand dollar is heading for a 2 percent weekly gain against its trans-Tasman counterpart after data showed the divergent neighbouring economies which will likely see interest rates move in New Zealand's favour.

The kiwi rose to an eight-year high 94.80 Australian cents this week, trading at 94.11 cents at 5pm in Wellington from 92.22 cents at the end of last week, and 94.45 cents yesterday. It fell to 82.99 US cents at 5pm from 83.44 cents at 8am and 83.29 cents yesterday.

New Zealand's economy is looking increasingly attractive to investors, with a survey this week showing business confidence at a 20-year high and house prices continuing to rise, while Australian jobs data surprised analysts with a drop in employment in December. Investors will watch New Zealand inflation figures next week to get a sense on how early central bank governor Graeme Wheeler will start hiking rates.

Traders are betting New Zealand's central bank will lift interest rates 118 basis points over the coming 12 months, while the Reserve Bank of Australia is expected to cut its key rate by 7 basis points over the same period, according to the Overnight Index Swap curve.

"The kiwi/Aussie cross could be under a little bit of risk if we get a benign CPI on Tuesday," said Martin Rudings, senior adviser at OMF in Wellington. "It's probably vulnerable for a bit of a correction."

OMF's Rudings said there isn't a huge amount of economic data next week, and traders are eyeing up the Federal Reserve and New Zealand Reserve Bank policy meetings the following week.

The local currency is unchanged against the greenback on the week, trading at 82.99 US cents at 5pm from 82.99 cents at last Friday's New York close.

A BusinessDesk survey of nine traders and strategists on Monday predicted the kiwi would trade between 82 US cents and 84.30 cents this week. Eight predicted the currency would gain, and one expected it to decline.

The local currency slipped to 86.58 yen at 5pm from 87.33 yen yesterday, and slipped to 60.95 euro cents from 61.12 cents. It was little changed at 50.79 British pence from 50.85 pence yesterday.

The trade-weighted index fell to 78.78 from 79.09 yesterday, and is heading for a 0.9 percent weekly gain from 78.08 at last week's close.

BusinessDesk.co.nz

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