Kiwi dollar goes from worst to best performer

New Zealand's dollar is now being supported by year-end demand from dairy companies and appetite for the currency to hedge strength in the greenback. Photo / iStock

The New Zealand and Australian dollars have gone from the worst performers among their major peers to the best as traders reassess their outlooks for the two nations' monetary policies.

The aussie and kiwi are the biggest gainers among their Group-of-10 counterparts this quarter, rebounding from losses during the first nine months of the year.

New Zealand central bank Governor Graeme Wheeler delivered the easing that economists had predicted this month, while signaling interest rates will now stay on hold. Reserve Bank of Australia Governor Glenn Stevens refrained from cutting rates for a seventh month.

"The Aussie dollar and the kiwi drew recent support from their monetary policy outlook after the central banks suggested they might not be easing policy again anytime soon," said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ in London.

Australia's dollar rose 0.3 per cent Tuesday to US72.71c as of 6.35 am in New York, bringing its gain this quarter to almost 4 per cent. The New Zealand dollar climbed 0.3 per cent to US68.66c, up more than 7 per cent since September.

The aussie tumbled 14 per cent in the first nine months of the year and the kiwi dropped 18 per cent amid a slump in commodity prices and an economic slowdown in China.

Aussie, Kiwi rebound:

Graphic / Bloomberg

Milk Run

New Zealand's dollar is now being supported by year-end demand from dairy companies and appetite for the currency to hedge strength in the greenback, according to Daniel Been, a strategist at ANZ in Sydney.

The currencies' recovery may be short-lived because the factors that sent them lower earlier in the year haven't necessarily been put to bed.

Australia's dollar will slip 5 per cent to US69c at the end of next year, while New Zealand's currency will decline 8 per cent to US63c, according to median forecasts of strategists surveyed by Bloomberg.

BTM's Hardman said the Aussie faces "downside risks from the slowdown in China's economy," while Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore, said the "key swingers" of both currencies are the slowing economy in the world's No. 2 economy and the negative outlook for commodities.