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NZ dollar drops to week low against Aussie as good NZ story fully priced into the currency

Monday 23rd December 2013

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The New Zealand dollar dropped to its lowest in more than a week against the Australian dollar on expectations the divergent paths of the two economies is already priced into their respective currencies.

The kiwi touched a low of 91.62 Australian cents over the weekend and was trading at 91.89 cents at 8am in Wellington from 92.45 cents on Friday. The local currency was little changed at 82.02 US cents at 8am, from 82.09 cents at the New York close and 82.07 cents at 5pm in Wellington on Friday even after upgraded US third-quarter growth.

The New Zealand dollar has advanced about 15 percent against its Australian counterpart this year as a strengthening local economy contrasts with a slowdown in Australia. Reports last week continued to show New Zealand's economy on a tear with growth at the fastest quarterly pace in almost four years and business confidence at the highest in almost 15 years.

"NZD/AUD has been drifting lower despite last week's decade high in business confidence," Mark Smith, senior economist at ANZ Bank New Zealand, said in a note. "That indicates to us the good New Zealand story is fully priced."

The kiwi will probably trade between 91.80 Australian cents to 92.50 cents today, Smith said.

At 3pm today, the Reserve Bank publishes money supply data for November.

The local currency dropped to 85.31 yen from 85.66 yen after the Bank of Japan kept its key interest rate unchanged and indicated the pace of bond purchases would remain the same in 2014. Japanese banks are closed today in observance of the Emperor's birthday.

The New Zealand dollar weakened to 59.98 euro cents from 60.15 cents on Friday even after S&P cut the European Union's rating, citing weaker cohesion among members and a deteriorating financial profile.

The kiwi was little changed at 50.20 British pence from 50.13 pence on Friday after revisions to UK GDP showed the economy is growing faster than previously estimated. The trade-weighted index slipped to 77.58 from 77.74 in Wellington Friday.

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