The Australian dollar's strength is good news for New Zealand manufacturers but means higher prices for a range of goods imported across the Tasman and will add to the Reserve Bank's inflation headache.
The aussie hit a fresh 24-year high of US95.71c against the greenback yesterday, boosted by
fresh weakness in the US unit, rising commodity prices and renewed appetite for riskier high-yielding currencies.
Australian currency watchers are now eyeing parity with the greenback as a real possibility.
While the kiwi rebounded from last week's eight-month lows against the US dollar to close yesterday at US77.21c, it struck a two-year low just below A81c against its Australian counterpart, stretching its five-month slump to just over 9 per cent.
The kiwi's slide against the aussie was "great news and it's not that well appreciated in terms of how significant that is", said ANZ Bank chief economist Cameron Bagrie. "The bottom line is that Australia is our biggest trading partner."
About half of New Zealand's manufacturing exports go across the Tasman and Australia is our biggest tourism market. But the aussie's strength is not so good for importers, consumers or the Reserve Bank. Higher prices for imports including a food, would add to inflationary pressure.
The aussie's performance against the kiwi reflects a growing preference for the currency among yield-chasing international investors. Bagrie said there was now negligible difference between swap rates on offer from the two currencies, but switching from New Zealand dollars into aussie was a reflection of the two countries' diverging prospects.
"Australia looks okay and New Zealand to be honest at the moment looks morbid."
