The New Zealand dollar climbed to a new eight-year high against its trans-Tasman counterpart after weak Australian jobs data highlighted the divergent interest rate outlooks between the neighbouring economies.
The kiwi rose as high as 94.80 Australian cents, trading at 94.72 cents at 8am from 94.45 cents yesterday. The local currency increased to 83.44 US cents from 83.29 cents yesterday.
Australian government figures showing a decline in full-time jobs in December prompted analysts to revisit their expectations the Reserve Bank of Australia might have to cut interest again having trimmed 50 basis points from its key rate last year. At the same time, New Zealand's central bank is poised to start hiking interest rates as the local economy accelerates and inflation pressures start to creep in. Traders are betting the RBA will trim 3 basis points from its key rate over the coming 12 months, while the RBNZ is expected to hike by 118 basis points, according to the Overnight Index Swap curve.
"New Zealand is expected to be the first Western country to start raising interest rates - it's going to happen but it's tough for the Reserve Bank with the kiwi and TWI up here," said Michael Johnston, senior dealer at HiFX in Auckland. The Australian employment data "increased the probability of another rate cut from the RBA, and that's put upwards pressure on the kiwi/Aussie cross."
New Zealand's December quarter consumer price index is due next week, and Reserve Bank governor Graeme Wheeler will review monetary policy on Jan. 30. In December Wheeler said economic growth and increased consumer spending were offsetting the high currency, which had previously caused him to back away from higher rates.
