NZ dollar holds near five-year high vs. AUD on favourable interest rate outlook

The New Zealand dollar held near five-year highs against its Australian counterpart as the interest rate outlook on this side of the Tasman continues to be more attractive on the strength of the local economic recovery.

The kiwi rose to 89.79 Australian cents at 5pm in Wellington, near this week's high of 89.94 cents, from 89.60 cents yesterday. The kiwi traded at 81.94 US cents at 5pm from 81.91 cents at 8am, down from 82.39 cents yesterday.

Government figures today showed New Zealand's monthly trade deficit was the smallest for an October month since the mid-1990s on the strength of the country's dairy exports, another sign that the local economic recovery is gathering steam. Traders are anticipating the Reserve Bank will start hiking interest rates next year as economic growth feeds inflation, a contrast to their expectations for the rates track in Australia. New Zealand's benchmark 10-year government bond was yielding 4.795 percent at 5pm in Wellington, 59 basis points higher than their Australian equivalent.

"Whether the banks are right (on when the Reserve Bank starts lifting rates) remains to be seen, but certainly the outlook remains firmer for kiwi interest rates than Australia," said Alex Hill, head of dealing at HiFX in Auckland. "The kiwi could be into the low 90s, a 91 to 92 Australian cent range, by Q1."

Hill said the kiwi is trading near the bottom of its recent range against the greenback, and if more good data comes out showing the US economy is improving, that could fuel another drop in the New Zealand dollar.

The local currency fell to 83.11 yen at 5pm in Wellington from 83.59 yen yesterday, and dropped to 60.27 euro cents from 60.87 cents. It declined to 50.51 British pence from 50.98 pence yesterday. The trade-weighted index decreased to 76.93 from 77.34 yesterday.

(BusinessDesk)

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NZ dollar holds near five-year high vs. AUD on favourable interest rate outlook