NZ dollar rises to 4-year high vs Aussie

The New Zealand dollar may trade in a range of 85 US cents and 86 cents today. Photo / File

The New Zealand dollar surged to its highest in four and a half years against its Australian counterpart as New Zealand's rising interest rates and growth outlook increase the lure of the nation's currency.

The kiwi advanced to 84 Australian cents from 83.58 at 5pm on Friday. It earlier touched 84.25 cents, the highest since January 2009. The trade-weighted index rose to 81.01 from 76.35 on Friday.

Slowing growth in Australia after the peak of the mining boom is likely to see the Reserve Bank of Australia cut interest rates later this year. In contrast, New Zealand's central bank is expected to hike rates as soon as the fourth quarter of this year as inflationary pressures from the Canterbury rebuild and Auckland housing pressures spill over to the rest of the economy and the growth outlook is buoyed by demand for the nation's food products.

"The longer-term strength of the Kiwi versus the Aussie is justified on fundamentals," said Kymberly Martin, strategist at Bank of New Zealand. "The only concern is the rate of momentum and if it can sustain these current levels."

Bank of New Zealand sees the fair value range for the kiwi at 81 Australian cents to 83 cents. Still, the kiwi may trade as high as 87 Australian cents, driven by positive growth and interest rate differentials.

Traders expect limited activity today due to a bank holiday in the UK, and Memorial Day holiday in the US.

The kiwi was little changed against the US dollar at 81 US cents from 80.90 in late New York trading Friday and 80.93 cents at 5pm in Wellington Friday.

The local currency was also little changed at 81.96 yen from 82.03 yen Friday, at 62.62 euro cents from 62.60 cents, and at 53.51 British pence from 53.60 pence.