NZ dollar continues to gain against Aussie

The New Zealand dollar gained against the Australian dollar as divergent interest rates and a weaker Australian economy prompted investors to favour the kiwi.

The kiwi hit 94.42Ac overnight, almost matching the three-month high of 94.43Ac reached the previous night. The local currency was trading at 94.14Ac at 8am in Wellington, from 94.10Ac at 5pm yesterday. It slipped to 67.98USc cents from 68.15USc.

The New Zealand dollar has gained 6 percent against the Aussie the past month as weaker economic indicators in Australia prompt investors to price in the chance of further interest rate cuts in Australia while New Zealand is seen pushing rate cuts out to later in the year. Australia's benchmark interest rate already sits at 1.75 percent, below New Zealand's benchmark at 2.25 percent.

"New Zealand offers a better story, a better reward, in terms of interest rates and on the economic performance, than Australia does," Peter Cavanaugh, client advisor at Bancorp Treasury Services said. "There's a pool of investor money that likes to sit in Australia and all it does at the margin is decides which side of the Tasman that it wants to be on, and it's come back over here."

Cavanaugh said he didn't forsee the currencies reaching parity. For that to occur, Australia would need to be in recession and New Zealand would need to be booming, or the interest rate differential between the two would need to be more than 1 percent, he said.

"Not only is parity a long way away but also the underlying conditions that would fulfill it are a long way away."

In New Zealand today, Auckland real estate agency Barfoot & Thompson releases its May sales data, vehicle registration figures for May are out. Treasury publishes the government's 10-month financial statements, Statistics NZ releases first-quarter building work data, and ANZ publishes its monthly commodity index.

Elsewhere, the US releases non-farm payrolls employment data, China publishes manufacturing data and Australia has services data.

The New Zealand dollar advanced to 60.94 euro cents from 60.81 cents after the European Central Bank kept interest rates unchanged, and edged up its inflation predictions.

The kiwi slid to ¥73.96 from ¥74.39, edged lower to 47.11 British pence from 47.18 pence, and declined to 4.4741 yuan from 4.4829 yuan. The trade-weighted index was at 73.37 from 73.45.

(BusinessDesk)