NZ dollar gains vs Aussie as kiwi comes back into favour on cross trade

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The New Zealand dollar rose against its Australian counterpart on speculation that a relatively stronger domestic economy and lack of exposure to international commodity prices such as iron ore favour the kiwi over the Aussie.

The kiwi rose to 94.95 Australian cents as at 5pm in Wellington, having started the week at 94.68 cents from 94.96 cents in New York on Friday. The kiwi pared its gains against the US dollar, trading at 70.67 US cents from 70.44 cents at 8am in Wellington and from 70.71 cents in New York on Friday.

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Some figures this month have cast doubt on whether the Australian economy is robust. The Westpac-Melbourne Institute survey of consumer sentiment fell 1.1 per cent in May while last week Treasury secretary John Fraser said the government is closely watching high levels of household indebtedness, which have left that economy vulnerable to a downturn. By contrast, New Zealand's Budget 2017 and Fonterra Cooperative Group's forecast payout upgrade have brightened sentiment for the kiwi.

"The kiwi is getting bought and the Aussie is being sold," said Graham Parlane, private client manager at OMF. "There's still a bit of a hangover from the well-received budget and Fonterra's forecast. There's some positive vibes coming out of Kiwi land and some negatives out of Australia."

Parlane said with the US dollar, the market is caught between a number of factors including whether Trump can enact policies that might drive US economic growth.

US first-quarter gross domestic product grew a revised annual 1.2 per cent in the first quarter, up from an initial estimate of 0.9 percent, the Commerce Department said on Friday. That was the weakest rate in a year as the US economy slowed from a 2.1 per cent pace in the fourth quarter, but other indicators of the world's biggest economy have pointed to a sturdier rate of growth.

With little domestic economic news scheduled, traders will likely look for offshore events to drive the direction to the kiwi. European Central Bank President Mario Draghi's appears before the European Parliament Economic Committee today. Expectations are rising that the ECB will signal that its easy policy stance might need to be tweaked if euro-zone data continue to paint a more positive economic outlook.

In the US, the Fed also releases its Beige Book on Wednesday.

The kiwi fell to 4.8413 yuan from 4.8269 yuan on Friday. It was little changed from Friday at 63.28 euro cents and dropped to 55.05 British pence from 55.18 pence. The local currency traded at 78.68 yen from 78.60 yen in New York on Friday.

New Zealand's two-year swap rate rose 1 basis point to 2.22 per cent and 10-year swaps rose 3 basis points to 3.22 per cent.