Jamie Gray

Jamie Gray is a business reporter for the New Zealand Herald and APNZ wire agency

Aussie looking less alluring

Kiwis seeking greener pastures in Australia will have cause to reflect on signals coming from the foreign exchange market as the New Zealand dollar continues to make big inroads against its rival across the Ditch.

The kiwi is trading at one-year highs against the aussie, reflecting the market's view that the New Zealand economic outlook is improving, relative to Australia's.

The NZ/Australian dollar cross rate kicked higher on Tuesday after the Reserve Bank of Australia (RBA) cut its official cash rate by 25 basis points to 3.25 per cent because of what it saw as a weaker outlook for world growth.

For the first time, RBA Governor Glenn Stevens alluded specifically to the end of the resource boom, which has been the biggest the nation has seen since the gold rush days of the 1850s.

"Looking ahead, the peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected," Stevens said.

The Australian/NZ dollar cross rate has been on a roll since sinking to A75.35c in November. The rate traded yesterday at A80.50c, having hit A80.80c after the RBA's rate call.

Currency analysts said the cross rate reflected the fact that the prices of so-called "soft" commodities that New Zealand is exposed to, such as dairy, were improving while the "hard" commodities, such as iron ore in Australia's case, were falling.

The cross rate also highlighted the different stages of both countries' cycles.

New Zealand's official cash rate is seen as being cemented in at 2.5 per cent, with the next move likely to be a hike. In Australia, particularly after Tuesday's cut, the RBA is seen as being in an easing mode.

Foreign exchange markets work on interest rate differentials, so the trend in both rates will be a key driver in the months ahead.

"At the broadest level, the kiwi's appreciation against the aussie reflects the fact that the New Zealand economy is in slightly better shape than Australia's at the moment," BNZ currency strategist Mike Jones said.

"Perhaps more correctly, the next six to 12 months are shaping as being better for the New Zealand economy than for Australia."

Jones said soft commodities would continue to do better than the hard commodities.

"That's the scenario that we think will play out further over the next year as Chinese growth slows and flagging supply of some of our exports boosts prices for the likes of dairy," he said.

"The period in the sun for the Australian economy is starting to come to an end because their commodities/mining boom is past its peak.

"You can contrast that to New Zealand, where our big investment boom, in terms of the Canterbury rebuild, is yet to take place."

Jones said the global investors were picking on the contrasts between the two countries, which was driving the kiwi higher against the aussie.

Westpac senior market strategist Imre Speizer said markets had taken special note of Stevens' observation that the Australian labour market had softened in recent months.

Speizer said Australia's so-called two-tier economy would come under more pressure as the country adjusted to lower resource prices.

"The economic outlook now is quite a bit worse than New Zealand's," Speizer said.

For those contemplating a shift to Australia, he said, the NZ/Australian dollar cross rate was telling them "the future of those mining jobs - if they are going over for those - may not be as long-lived as they think".

- APNZ

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