The New Zealand dollar surged to its highest in four and a half years against its Australian counterpart as New Zealand's rising interest rates and growth outlook increase the lure of the nation's currency.
The kiwi advanced to 84 Australian cents from 83.58 at 5pm on Friday. It earlier touched 84.25 cents, the highest since January 2009. The trade-weighted index rose to 81.01 from 76.35 on Friday.
Slowing growth in Australia after the peak of the mining boom is likely to see the Reserve Bank of Australia cut interest rates later this year. In contrast, New Zealand's central bank is expected to hike rates as soon as the fourth quarter of this year as inflationary pressures from the Canterbury rebuild and Auckland housing pressures spill over to the rest of the economy and the growth outlook is buoyed by demand for the nation's food products.
"The longer-term strength of the Kiwi versus the Aussie is justified on fundamentals," said Kymberly Martin, strategist at Bank of New Zealand. "The only concern is the rate of momentum and if it can sustain these current levels."
Bank of New Zealand sees the fair value range for the kiwi at 81 Australian cents to 83 cents. Still, the kiwi may trade as high as 87 Australian cents, driven by positive growth and interest rate differentials.
