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The New Zealand dollar climbed near an 18-month high against its Australian counterpart as the fortunes for our neighbours pall, while looking rosier on this side of the Tasman.
The kiwi climbed as high as 80.93 Australian cents, the highest since August 2011, and traded at 80.81 cents at 5pm in Wellington from 80.31 cents yesterday. The currency was unchanged at 84.10 US cents from 8am and up from 83.67 cents yesterday.
New Zealand is becoming a more attractive destination for investors looking for higher yields, with the Reserve Bank looking more likely to hike or maintain rates at current levels, while its Australian counterpart has an easing bias.
That comes as the local economy is set to get a boost from the looming Canterbury rebuild, while Australia's mining boom continues to come off its peak. The yield on New Zealand's 10-year government bonds is almost 26 basis points higher than its Australian equivalent at 3.77 percent.
"I really do think the Christchurch rebuild will lead to a rise in rates quicker than other people do," says Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. The kiwi/Australian cross is "undervalued", he says. "I see it heading up towards 85 (Australian) cents," though that is not ASB's official view.
The Australian dollar also took a hit from slightly weaker Chinese manufacturing figures than expected, with the nation's economy more closely linked than New Zealand to China's fortunes. The Australian dollar fell to $US1.0401 at 5pm in Wellington from $US1.0442 before the announcement.
The kiwi's rally comes after the Reserve Bank held the official cash rate at 2.5 percent yesterday, and a speech by governor Graeme Wheeler today, which again played down the bank's ability to influence the currency in a low interest rate environment.
Figures published this week showed the bank sold a net $199 million of kiwi dollars in December, which has been seen as the RBNZ taking a punt on the currency running out of steam.
Investors largely ignored flat migration numbers for December, which showed a slowing pace of annual net migration out of New Zealand, and will be looking at US employment figures out tomorrow in Washington.
The kiwi climbed to 77.21 yen at 5pm in Wellington from 75.87 yen yesterday and increased to 61.78 euro cents from 61.50 cents. It rose to 53.01 British pence from 52.80 pence yesterday.
The trade-weighted index advanced to 75.64 from 75.06 yesterday. The TWI rose as high as 75.82, and is trading near the 77.17 peak in mid-2007, when the Reserve Bank last intervened.