By ELLEN READ
Investors are lapping up Australian shares as the dollar sits near highs against its transtasman counterpart.
Brokers have been pushing the Aussie story for some time, and since the kiwi moved up through 93Ac a month ago they have noticed stronger demand for Australian stocks.
"It's been a theme I've been pushing for most of the year, but once the dollar has hit 93Ac to 94Ac it's really compelling," one broker said.
While both equity markets are seen as fully priced, brokers said bargains were still to be had and the strong kiwi dollar gave investors an excellent opportunity to increase their Australian holdings.
"It would make sense to buy Aussie shares right now," said First NZ Capital strategist Jason Wong.
"Medium-long-term investors stand to make a handsome currency gain. Value-wise, New Zealand shares are trading more expensive relative to Aussie shares than they typically have in the past and our economic outlook is weaker, given a more aggressive central bank."
"Overlaying the currency story on top of that, there are compelling reasons to move money across the Tasman. I think the smart money is already beginning to move."
The new NZX Mozy index fund is another way of investing in Australia at the moment and taking advantage of the exchange rate opportunity. It is based on the S&P/ASX Midcap 50 fund and the initial public offer is open until Friday.
The kiwi dropped back below 94Ac yesterday after touching nine-year highs on Friday. It reached 94.95Ac then, just shy of the July 1995 record of 94.96Ac. Market expectations are for further strength but how much is a matter of debate.
The expected end to monetary policy tightening across the Tasman, the embassy bombing in Jakarta and the usual worries over pending elections are likely to hinder further Australian dollar gains.
Westpac's "fair value" model also suggests the cross is overvalued. It provides an estimate of 89Ac for this quarter, suggesting that the cross is about 5 per cent above fair value at present levels.
"We expect NZD/AUD to trend lower next year not only as relative fundamentals move in the AUD's favour but as the extent of overvaluation in the cross is diminished," said Westpac currency strategist Johnathan Bayley.
Taking a different outlook, the Commonwealth Bank's chief global strategist, Michael Derks, was picking parity.
"The contrasting economic fortunes of the Australian and NZ economies have been reflected in a dramatic move in the AUD/NZD cross over recent months," he said.
"Those plans for parity-party celebrations that New Zealanders were forced to put on hold early last year can now be refreshed. Indeed, there is a very good chance that before this [kiwi/aussie run] is complete, parity will have been reached."
Parity could be bad news for the local dairy industry, which relies on currency advantage for some of its competitiveness.
The kiwi firmed against the US dollar yesterday as the greenback fell after a decline in US August producer prices was reported.
At 5pm, the kiwi was at 65.71USc from 65.23USc at 5pm on Friday.
US consumer price index numbers and consumer sentiment data are both due this week. Any weakness there would help push the kiwi higher.
Investors lured over Tasman by strong kiwi
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