NZ dollar holds near highest in almost 4 months vs Aussie as parity talk re-appears

The New Zealand dollar traded near the highest levels in almost four months against the Australian dollar and is expected to keeping pushing higher given the impact of falling commodity prices across the Tasman coupled with New Zealand's better economic outlook.

The kiwi traded at 94.88 Australian cents as at 5pm in Wellington versus 94.83 Australian cents at 8am and 94.95 late yesterday. It has rallied from as low as 90.66 cents in mid-March. The local dollar fell to 70.46 US cents from 70.67 cents yesterday.

"The Australian dollar is looking heavy and the real focus in the past couple of days has been on the kiwi/Aussie cross and what level it could reach," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank.

He noted there had been little trading activity on the day due to holidays in the US, UK, China and Hong Kong but sliding commodity prices and the weaker outlook for the Australian economy versus the New Zealand economy meant parity "is looking more likely this time round ."

The Aussie remained under pressure as oil prices retreated on lingering concerns about whether the extension of output cuts by OPEC and other producing countries will be enough to support prices. Kelleher said Australia may also be witnessing a cooling off in its housing boom as approvals for new projects sank 17.2 percent on the year in April.

New Zealand residential building consents dropped 7.6 percent in April but the slide had little impact on the market as Statistics New Zealand attributed the drop to the timing of the Easter public holiday.

Kelleher said the main event risk for markets will be next month's likely rate increase by the US Federal Reserve. Against that backdrop, he said the kiwi would struggle to break through resistance at 71.50 US cents "if we even get that high."

He said while both the Australia and the New Zealand dollar would fall against the greenback on the US rate hike, the rate differential between New Zealand and the US will continue to be more attractive than the US-Australian differential, adding to the allure of the kiwi, in particular against the Aussie.

Otherwise, markets will be watching for the Reserve Bank of Australia's rate decision on June 6 and that nation's gross domestic product on June 7.

On the day, the kiwi continued to gain against the euro after European Central Bank President Mario Draghi said the regional economic bloc still requires stimulus even as it shows signs of improved growth.

The kiwi traded at 63.33 euro cents from 63.28 cents late yesterday. The kiwi fell to 4.8283 yuan from 4.8413 yuan. It was little changed at 54.99 British pence from 55.05 pence and fell to 78.12 yen from 78.68 yen. The trade-weighted index was at 76.31 from 76.44 late yesterday.

New Zealand's two-year swap rate was unchanged at 2.22 percent and 10-year swaps fell 1 basis point to 3.21 percent.

(BusinessDesk)