The New Zealand dollar fell against its trans-Tasman counterpart after better-than-expected Australian economic growth fuelled predictions of a widening interest divergence between the neighbouring nations.

The kiwi declined to 91.16 Australian cents at 5pm in Wellington from 91.32 cents yesterday. It held near a 30-month low against the greenback, trading at 65.55 US cents from 65.96 cents yesterday, as South Africa's recession reignited fears over emerging economies.

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Bureau of Statistics figures showed Australia's gross domestic product expanded 0.9 per cent in the June quarter for a 3.4 per cent annual gain, driven by household consumption, construction, and mining. Economists expected 0.7 per cent quarterly growth for a 2.8 per cent annual gain.

Paul Dales, chief Australia and New Zealand economist for Capital Economics, said while he doubts the economy can continue to grow at the current annual rate "there's no denying that the first half of the year has been very good."


While he doesn't expect the RBA to rush to raise interest rates "markets may start to reconsider their view that interest rates won't rise until sometime in 2020," said Dales.

Meanwhile, traders have priced in a 50 per cent chance of a rate cut in New Zealand within the next 12 months. The RBA's target cash rate is at 1.5 perc ent and the RBNZ's official cash rate is 1.75 per cent.

New Zealand's two-year swap rate fell 1 basis point to 1.96 per cent. The 10-year swap was unchanged at 2.80 per cent.

Tim Kelleher, head of institutional foreign exchange sales at ASB Bank, said the kiwi would have fallen further - in particular given weak domestic data - "but the market is obviously quite short, so it can't really move too far."

Short positioning is when a trader bets an asset will decline and they can buy it back at a cheaper price.

The ANZ world commodity price index fell 1.1 per cent in August, it's third consecutive monthly decline while government data showed the volume of total building work missed expectations in the June quarter. "All the data keeps on printing worse," said Kelleher.

Global dairy prices also dipped in the overnight auction with whole milk powder prices down 2.2 per cent to US$2,821 a tonne.

Looking ahead, Kelleher said investors will be watching for an on-the-record speech from Reserve Bank governor Adrian Orr Friday entitled 'Geopolitics, New Zealand and the Winds of Change'.


The local currency fell to 50.97 British pence from 51.29 pence yesterday. The kiwi declined to 56.54 euro cents from 56.84 cents.

The New Zealand dollar dropped to 73.11 yen from 73.31 yen yesterday and decreased to 4.4819 Chinese yuan from 4.4986 yuan.

The trade-weighted index declined to 71.26 from 71.55 yesterday.