By ELLEN READ
The New Zealand dollar may be at multi-year highs against the United States currency but exporters can take comfort in the fact that it is at a year low against the Australian dollar.
The kiwi is now worth just over 86Ac - well down on the 93Ac it hit in January and a level not seen since September last year.
Changes in relative growth rates and interest rate differentials have driven the change.
At the start of the year when the kiwi reached 90Ac, it was boosted by the fact that the New Zealand economy grew more than Australia's last year and our interest rates were 100 basis points above Australia's.
Now, with just 25 basis points separating the transtasman cash rates and economic growth and expectations more closely aligned, the kiwi has lost its pulling power - hence the lower cross rate.
Westpac senior currency strategist Johnathan Bayley believes it has dropped almost as much as it's going to so he's picking an 85Ac level for the end of the year.
On the flipside, the kiwi reached 60.98USc at 5pm yesterday, its highest level in six years against the greenback.
The move was prompted by greenback weakness rather than a sudden burst of popularity for the kiwi.
The greenback dipped against most other currencies, hit by falling share prices and the prospect of rate hikes by major foreign central banks. The Reserve Bank's decision to leave the cash rate on hold at 5 per cent but to signal likely hikes in the first half of next year will support its current strength.
"The risk in coming sessions is that the general tone of the statement encourages interest-rate markets to price in a little more tightening and provides some support to NZ dollar crosses that are already doing quite well," said Bayley.
Looking at the kiwi against the currencies that make up the trade-weighted index, he expects it has seen its cycle highs against the Australian, Japanese and British currencies but is likely to move higher against the greenback and euro.
This mix of directions means that the trade-weighted index has been relatively stable over the past few months, moving in a range of 61.4 to 63.4 since July.
Kiwi's muscle looks flabbier against Australian dollar
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