NZ dollar extends gain vs. A$ as RBA minutes, NZ govt forecasts show diverging economies

The New Zealand dollar extended its rally against its trans-Tasman counterpart as downbeat minutes to the latest Reserve Bank of Australia policy review and increasingly optimistic local government forecasts underline the divergence between the neighbouring economies.

The kiwi rose as high as 92.69 Australian cents, a new five-year high, and traded at 92.59 cents at 5pm in Wellington from 92.40 cents yesterday. It gained to 82.82 US cents at 5pm from 82.55 cents at 8am, unchanged from 82.82 cents yesterday.

Minutes to the last RBA meeting showed the central bank retained an easing bias as the strength of the Australian dollar remained uncomfortably high, while New Zealand government forecasts showed a faster return to cash surplus as the economic recovery gathers speed. The yield on the New Zealand 10-year government bond was 4.76 percent, 51 basis points above its Australian equivalent.

"Interest differentials are getting pretty high now between the Aussie and kiwi," said Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. "The RBA doesn't want to drop its easing bias, and clearly prefers that to come via the currency."

Traders will be looking at the results of Fonterra Cooperative Group's dairy auction on Tuesday in the US, before New Zealand third-quarter balance of payments on Wednesday, ahead of the Federal Reserve rate review and local gross domestic product on Thursday.

CBA's Tennent-Brown said "the Fed could eclipse everything" though a strong GDP print would bear out on the New Zealand/Australian dollar cross-rate.

"Whatever the Fed does will be a big driver, though we think the US dollar should be pretty neutral after the Fed, with the majority of people expecting no change," he said.

The local currency increased to 85.26 yen at 5pm in Wellington from 85.05 yen yesterday, and was little changed at 60.15 euro cents from 60.18 cents. It traded at 50.76 British pence from 50.78 pence yesterday. The trade-weighted index was little changed at 77.98 from 77.93 yesterday.

(BusinessDesk)