Kiwi flirts with parity to Aussie dollar

The NZ dollar reached another record high on the cross rate. Photo / NZME.

The New Zealand dollar continues its almost daily flirtation with Aussie dollar parity, reaching another record high on the cross rate as expectations began to mount that the Reserve Bank of Australia would soon cut its official interest rate for the second time this year.

The cross rate hit A98.47c yesterday - its highest point - up from A97.73c late on Monday and up about A10c from this time last year.

Parity is looking more likely, although currency strategists do not expect the kiwi to punch above its weight for a sustained period.

The kiwi's strength against the Australian dollar, and other currencies, increasingly pointed to its odd-man-out status, with 27 central banks around the world having chosen to cut rates this year while the Reserve Bank is expected to keep its official cash rate on hold at 3.5 per cent for the foreseeable future.

The Australian central bank will review its rate - which sits at a record low of 2.25 per cent - next week and expectations were growing it would move again, having lowered it from 2.5 per cent on February 4.

Against the major currencies the Australian dollar was also under downward pressure, trading locally against the greenback at US76.25c.

HSBC economist Daniel Smith said a cut was possible next week but May was looking more likely.

Smith expected the cross rate to remain in the high A90s throughout this year, but with a chance of reaching parity, albeit briefly.

"The fall in commodities prices has been a bit of an income shock for the Australian economy," Smith said, pointing to a near 50 per cent drop in iron ore prices last year.

Generally the Australian economy is going at a decent clip - 2.5 per cent in 2014 - not slow by international standards, but still below trend growth, according to Smith.

"Capacity is growing faster than output at the moment, and that's the issue," he said.

"Our central expectation is that the cross rate is going to remain roughly where it is - in the high 90s - for the rest of 2015 and that just reflects the fact that New Zealand is outperforming Australia. There is a good chance of a brief period at parity, but it won't be sustained."

ANZ senior foreign exchange strategist Sam Tuck said that while the kiwi was strong, risks remained on the downside given concerns about the strength of China's economy, weak growth globally and lower dairy prices. Tuck said ANZ's view was that parity is not justified, and is more likely to be transitory.