NZ dollar rises to 5 month high vs Aussie

The New Zealand dollar rose to a five-month high against the Australian dollar. Photo / File

The New Zealand dollar rose to a five-month high against the Australian dollar as fears of a slowdown in China, Australia's biggest export market, bolsters the relative appeal of the kiwi.

The New Zealand dollar rose to 78.64 Australian cents just before 8am from 78.44 at 5pm. The kiwi fell to 81.66 US cents from 81.82 cents yesterday.

Investors are fretting that manufacturing data out of China on April 1 will show that its factories are slowing output reducing demand for Australia's iron oil and coking coal. Traders are beating Australian's central bank are set to cut interest rates over the next 12 months while in New Zealand rates are tipped to rise.

"The weakness is really in the Australian dollar leading the kiwi," said Tim Kelleher, head of intuitional FX sales NZ ASB Intuitional. "The kiwi has really been aligned with the Australian dollar this week."

"The Australian data hasn't been that bad - I think the RBA would be looking to hold fire," on cutting interest rates, Kelleher said.

The RBA is expected to slash its cash rate by 61 basis points over the next 12 months, according to the Overnight Index Swap curve, narrowing the gap with New Zealand's record low official cash rate of 2.5 per cent. New Zealand's central bank is seen lifting the OCR by 25 basis points in the next 12 months. That would narrow the gap in rates between the two companies making the kiwi appear relatively more attractive.

China, New Zealand's second-largest export market, is set to release its official performance of manufacturing index next week. HSBC's flash manufacturing, the unofficial reading of China's PMI, showed the world's second-biggest economy may be in for its fifth monthly contraction.

In New Zealand, Fonterra Cooperative Group, the world's biggest exporter of dairy products, is set to release its first-half results today. Dairy products are New Zealand's biggest export.

The National Bank Regional Business Outlook is also due out, as is Statistics New Zealand's Christchurch Retail Trade Indicator for the December quarter.

The New Zealand dollar was little changed on 61.32 euro cents from 61.38 cents yesterday. It rose to 51.39 British pence from 51.22 pence. The kiwi fell to 67.68 yen from 67.80 yen.

The trade-weighted index was little changed on 72.79 from 72.82.