The New Zealand dollar climbed to a new five-year high against its Australian counterpart after Reserve Bank governor Graeme Wheeler signalled steeper interest rate hikes next year to quell looming inflation pressures, underlining the disparity between the two nations' economies.
The kiwi climbed as high as 91.73 Australian cents, and was at 91.63 cents at 5pm in Wellington from 90.62 cents yesterday. The local currency pared its loss against the greenback after the RBNZ review, trading at 82.64 US cents at 5pm from 82.36 cents at 8am, little changed from 82.78 cents yesterday.
Wheeler kept the official cash rate at 2.5 per cent today, as expected, and said its forecasts suggest the key rate will rise 2.25 percentage points over the coming two-and-a-quarter years to head off any inflationary pressures. The statement was more aggressive than the market was expecting, and firmed up the view that New Zealand rates will get more attractive than their Australian counterparts, despite better than expected employment figures across the Tasman.
The yield on the New Zealand 10-year government bond was 4.83 per cent at 5pm in Wellington, about 50 basis points above its Australian equivalent.
"The kiwi/Aussie cross bore all the brunt of it," said Tim Kelleher, head of FX sales NZ, at ASB Institutional in Auckland. "That cross is like a freight train at the moment."
