Currency talk: Kiwi climbing against the Aussie

Join ANZ's Philip Borkin and NBR's Jason Walls as they break down the week's biggest currency news. With special feature audio.

The kiwi dollar continues to climb against the Australian dollar, last week hitting its highest level against the Aussie since May last year.

The kiwi came within a whisker of 96c against the Aussie, reigniting questions over parity between the two currencies.

But ANZ senior economist Philip Borkin say it’s not quite at that point yet.

“It’s all about relativities; the Aussie economy is growing at a similar pace to New Zealand’s with a similar employment number and the official cash rates (OCR) are close too.”

But he says looking at the two countries' political situations, current accounts and fiscal positions, New Zealand comes out ahead.

“There are some positive things going on in New Zealand and this is one of the reasons we think the kiwi dollar is higher against the Aussie at the moment.”

He says the upcoming Australian election will be important as well.

“The polls look relatively close, it could be one of those situations where the government does not get a clear mandate to implement reforms and will struggle to get their books in order.

“In that sort of environment perhaps we will start knocking on that parity door once again.”

New Zealand’s 2016 first quarter GDP figures beat economists’ expectations, coming in at 0.7% growth. This, along with a strengthening housing market, means the chances of the Reserve Bank cutting the OCR at its next meeting in August have dropped.

Mr Borkin says between now and then there is still inflation data to be released, which will help influence the Reserve Bank’s decision.  

“Domestically that will be the critical bit of data on whether the Reserve Bank cuts the OCR or not.”

He says if the Reserve Bank does not cut the OCR in August, the kiwi dollar will push higher against the Aussie.  

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