The New Zealand dollar held near a five-year high against its trans-Tasman counterpart today as the likely divergent interest rate paths of the two economies continued to fuel demand for the kiwi.

The kiwi traded at 90.74 Australian cents at 5pm in Wellington, having climbed as high as 90.95 cents today, from 90.34 cents yesterday. The local currency rose to 82.09 US cents at 5pm from 81.79 cents at 8am and 81.86 cents yesterday.

A sluggish Australian economy has kept alive the potential for another rate cut by the country's central bank, the opposite trajectory to New Zealand, where Reserve Bank governor Graeme Wheeler has indicated the next move will be higher.

The divergent interest rate paths makes the kiwi dollar more attractive for investors, and traders are pricing in 107 basis points of increases to New Zealand's key rate of 2.5 per cent over the coming 12 months, compared to just 16 points for its Australian counterpart, also at 2.5 per cent.


"You had to have your head in the sand if you were wishing and willing the kiwi lower against the Aussie - the interest rate trade couldn't get clearer," said Alex Hill, head of dealing at HiFX in Auckland. "I wouldn't be surprised to see it up to 93/94" Australian cents.

The local currency is looking weaker against the greenback after private payrolls figures in the US indicated potentially stronger jobs growth last month, and investors are awaiting the release of non-farm payrolls on Friday in Washington.

HiFX's Hill said that could push the kiwi dollar back into the mid-80 US cents range, though it's got strong support around the 80.80 cents level.

The European Central Bank is expected to keep its benchmark rate on hold at its meeting in Brussels today on Thursday after unexpectedly cutting its key interest rate to a record low 0.25 per cent last month, as is the Bank of England when it meets on Thursday.

The local currency was little changed at 84.01 yen from 83.98 yen yesterday and increased to 60.41 euro from 60.26 euro. The kiwi edged up to 50.13 British pence from 49.96 pence yesterday. The trade-weighted index increased to 77.28 from 77.08 yesterday.