Kiwi likely to soften against the aussie

By ELLEN READ

Corporate deals and their associated currency demands may take the heat off the New Zealand dollar's strength against the Australian currency.

Seven of the 10 potential merger and acquisition (m&a) deals listed in a Westpac Institutional Bank report are kiwi-aussie dollar deals.

The biggest deals on the table are Fonterra's planned $1.5 billion takeover of Australia's National Foods and Australian company AGL's sale of its 66 per cent stake in NGC.

And, as the bank's senior currency strategist Johnathan Bayley explained, these are not evenly balanced.

Negative flows (foreign currency coming in to pay for New Zealand purchases) - is $2.2 billion with just $534 million in positive flows (NZ dollars going out to buy foreign assets) if all deals are completed.

"While a big question mark sits over timing, m&a flow would be a significant, if temporary, contributor to the downward trend in NZD/AUD," Bayley said.

Since touching a nine-year high in early September at 94.95Ac, the kiwi has dropped back to nearer 90Ac. It traded at 90.65Ac last night.


A second dampening factor for the local currency was the latest Reserve Bank statement, when the likely end of interest-rate rises was signalled. In contrast, rates across the Tasman are expected to tighten again next year.

"One of the key things that had made the kiwi the darling of international foreign exchange markets was just the prospect of ever-higher Reserve Bank rates," said Australia's Commonwealth Bank's manager of foreign exchange strategy, Alex Schuman.

The ANZ also sees the kiwi softening against the Aussie in the medium term. The news will be welcomed by the country's exporters.

With Australia this country's largest export market, and the destination of many first-time exporters, a weaker kiwi means more income for them.