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NZ dollar touches fresh 5-year high vs. Aussie ahead of NZ fiscal update, RBA minutes

Tuesday 17th December 2013

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The New Zealand dollar touched a fresh five-year high against the Aussie overnight ahead of reports today which are expected to confirm the divergence of the two economies.

The kiwi rose as high as 92.57 Australian cents in local trading last night, and was at 92.14 cents at 8am in Wellington, from 92.40 cents at 5pm yesterday. The local currency slipped to 82.55 US cents from 82.82 cents yesterday.

The New Zealand dollar has been accelerating away from its Australian counterpart as a slowing economy in Australia and a revival in local growth highlight the divergent interest rate paths of the two nations. New Zealand government forecasts today are expected to show a strengthening local economy is keeping the nation on track to return to fiscal surplus by 2015. Meanwhile in Australia, minutes of the last central bank meeting are likely to show the bank remains cautious about the economic outlook.

"This cross made another new cycle high last night before pulling back," Mark Smith, senior economist at ANZ New Zealand, said in a note. "We would expect the data today to reinforce NZD strength with the NZ Half-Year and Economic Fiscal Update expected to remain strong whilst the RBA minutes continue to inject caution."

The kiwi will probably trade between 91.80 Australian cents and 92.50 cents today, ANZ said.

The New Zealand government's forecasts will be released at 1pm while the RBA minutes from its December meeting are scheduled for release at 1:30pm New Zealand time.

RBA assistant governor Guy Debelle will speak to the Australasian Finance and Banking Conference in Sydney at 1:15pm New Zealand time. The Australian government's mid-year economic and fiscal outlook is scheduled for release at 2:30pm New Zealand time.

The New Zealand dollar weakened to 59.99 euro cents from 60.18 cents yesterday after European data showed business activity picked up. Reports yesterday showed German manufacturing activity and the Flash Eurozone Composite Purchasing Managers index both beat forecasts in December.

Still, offsetting the reports, European Central Bank president Mario Draghi told the European parliament the region's recovery would be gradual with subdued inflation that could go lower.

The New Zealand dollar was little changed at 84.99 yen from 85.05 yen yesterday after an uptick in the Tankan business sentiment survey. The kiwi edged lower to 50.61 British pence from 50.78 pence yesterday ahead of a report on UK November inflation today. The trade-weighted index slipped to 77.73 from 77.93 yesterday.

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