The New Zealand dollar approached 89 Australian cents this morning as investors favoured the reviving local economy over investment in Australia where the economy is slowing.
The kiwi touched a new five-year high of 88.98 Australian cents, and recently traded at 88.87 cents, from 88.30 cents at the 5pm market close in Wellington yesterday. The local currency was little changed at 79.84 US cents from 79.77 cents yesterday.
The New Zealand dollar has surged 12 per cent against the Australian dollar this year as the rebuilding of earthquake-damaged Christchurch, rising house prices and high dairy prices underpin confidence and spending, bolstering the local economy and signalling higher interest rates. In contrast, Australia's economy is slowing as the mining boom comes off the boil, meaning rates are headed lower.
"The Australian dollar has been under a lot of pressure," said Kevin Morgan, a senior dealer at OM Financial. "We have got two central banks diametrically opposed."
Pressures in the New Zealand economy "keep the Reserve Bank on guard for higher rates, and with the Australian bank certainly set to cut rates in the next few months, the kiwi/aussie will go above 90 cents and possibly beyond in the next two to three months," Morgan said.