NZ dollar hits 3-month high vs. Aussie as higher rates lure investors

Friday 20th May 2016

The New Zealand dollar touched a three-month high against the Australian dollar as investors favoured the higher returns available on this side of the Tasman.

The kiwi hit 93.86 Australian cents and was trading at 93.31 cents at 8am in Wellington, from 93.42 cents at 5pm yesterday. The local currency edged up to 67.42 US cents from 67.31 cents.

Investors are favouring the kiwi over the Aussie to take advantage of New Zealand’s higher relative interest rates. Australia's central bank cut its benchmark interest rate a quarter point to 1.75 percent this month, while New Zealand's central bank held its rate at 2.25 percent at last month's meeting. That's propelled the kiwi higher, approaching a key technical level of 94 Australian cents, which could see it break higher still, hurting the competitiveness of exporters to New Zealand's second-largest market.

"The kiwi/Aussie looks like it wants to go higher," said Derek Rankin, a director at Rankin Treasury Advisory. "Interest rates are higher in New Zealand than they are in Australia. If you are actually looking to invest in this part of the world, the base rate for Australia is being lowered down to 1.75 and the base rate for New Zealand is at 2.25 so you can get a half a percent more."

Rankin expects New Zealand's Reserve Bank to reduce its benchmark interest rate at the next meeting on June 9, to help push down the Aussie cross rate, although he notes it's a "line ball decision".

In New Zealand today, April data for migration, tourism and credit spending is released.

The New Zealand dollar advanced to 60.21 euro cents from 60.01 cents, and gained to 4.4120 yuan from 4.4036 yuan. It was little changed at 46.19 British pence from 46.17 pence, and at 74.11 yen from 74.07 yen. The trade-weighted index rose to 72.63 from 72.55.

BusinessDesk.co.nz

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