The New Zealand dollar hit a fresh six-month high against its trans-Tasman counterpart after Australian government figures showed an unexpected trade deficit in February.

The kiwi rose as high as 79.49 Australian cents, the highest level since Oct. 6, and traded at 79.45 cents at 5pm, up from 79.11 cents yesterday.

Australia expectedly posted a trade deficit of A$480 million in February, missing market expectations of a surplus of A$1.1 billion. That pushed the Australian dollar lower against most other currencies as the growing impact of China's slow-down on Australia's exports stokes fears about the so-called lucky country's economy.

"China's slowing is going to hurt Australian exports, which have been their saving grace," said Imre Speizer, market strategist at Westpac Banking. The trend of the kiwi's strength against the Australian dollar "is still intact and had gone quite a way, there's maybe another cent to go."


The kiwi's strength against its Australian counterpart comes as traders prepare for Australia's interest rate advantage to narrow as the Reserve Bank of Australia prepares to cut interest rates.

Traders are betting the RBA, which kept its cash target unchanged at 4.25 percent this week, will slice 81 basis points from the rate over the coming 12 months, according to the Overnight Index Swap curve. On the same measure, they have priced in 22 basis points of increase for the Reserve Bank of New Zealand's 2.5 percent official cash rate.

Speizer said the spread between Australian and New Zealand swap rates has "narrowed significantly" and should continue to do so as Australia's interest rate advantage diminishes. The spread between two-year interest swap rates narrowed to 2.4 percentage points, the smallest gap since Feb. 17, according to Bloomberg.

month's Federal Open Market Committee ruled out a third round of quantitative easing to stimulate the world's biggest economy.

That leaves US non-farm payrolls figures published on Friday as the next major event risk.

The kiwi fell to 81.60 US cents at 5pm from 81.82 cents at 8am, and was down from 82.33 cents yesterday. The trade-weighted index was little changed at 73.08 from 73.10 yesterday.

The New Zealand dollar rose to 61.8 euro cents from 61.70 cents yesterday, and was little changed at 51.33 pence from 51.31 pence. It traded at 67.50 yen at 5pm from 67.44 yen yesterday.