NZ dollar gains vs Aust dollar as investors rethink interest rate tracks

 The New Zealand dollar hit a two-month high against its trans-Tasman counterpart after weaker than expected consumer spending in Australia saw investors rethink the interest rate paths for the two nations. 

The kiwi rose as high as 93.94 Australian cents, trading at 93.80 cents as at 5pm in Wellington from 93.48 cents yesterday. The local currency slipped to 69.02 US cents from 69.23 cents yesterday. 

The Australian dollar dropped almost half a US cent after Bureau of Statistics figures showed retail sales unexpectedly shrank last month, cementing the view that the Reserve Bank of Australia won't be in a hurry to raise the target cash rate from 1.5 percent. Meantime in New Zealand, rising consumer prices and higher long-term inflation expectations have investors anticipating RBNZ governor Graeme Wheeler may signal an earlier interest rate hike to the 1.75 percent level it's currently at than previously anticipated. The yield on New Zealand's 10-year government bond was recently at 3.12 percent, compared to 2.7 percent in Australia. 

"Two negative numbers from Australia really does push back the chance of seeing anything from the RBA any time soon," said Alex Hill, head of dealing Australasia at HiFX in Auckland. "As a result, the kiwi/Aussie is higher with the interest rate differentials stretching out." 

Investors will keep tabs on the Australian federal budget, but HiFX's Hill doesn't expect that to have much influence on the cross rate, which is largely being driven by the rate differentials. That's also seen growing demand for the greenback as expectations build for the Federal Reserve to follow through on two more interest rate hikes this year. 

New Zealand's two-year swap rate was unchanged at 2.34 percent, and 10-year swaps increased 1 basis points to 3.44 percent. 

The local currency edged up to 78.17 yen from 78.04 yen yesterday and fell to 4.7662 Chinese yuan from 4.7769 yuan. It traded at 63.11 euro cents from 63.10 cents yesterday and declined to 53.28 British pence from 53.41 pence. The trade-weighted index fell to 78.17 from 75.39. 

(BusinessDesk)