NZ dollar hits seven-month high against Aussie as RBA affirms flat rate track

The kiwi rose as high as 94.53 Australian cents and was trading at 94.39 cents as at 5pm. Photo / 123RF

The New Zealand dollar hit a seven-month high against its trans-Tasman counterpart after the Reserve Bank of Australia affirmed a flat interest rate track.

The kiwi rose as high as 94.53 Australian cents and was trading at 94.39 cents as at 5pm in Wellington, up from 93.79 cents yesterday. The kiwi climbed to 69.54 US cents from 69.10 cents yesterday.

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The RBA kept the target cash rate at 1.5 per cent as expected, sticking to its guidance that further progress on inflation and employment will be gradual. Governor Philip Lowe said the economy was performing well, however the outlook for household consumption remained uncertain.

Ben Udy, Australia and New Zealand economist at Capital Economics, raised his forecast for third-quarter Australian GDP today as net exports came in ahead of expectations and government consumption increased.

Still, he anticipates slower growth in subsequent quarters as cooling house prices sap consumer demand. The Royal Commission into banking may also lead to tighter credit criteria.

While the RBA has stuck to script, New Zealand's run of strong economic data has supported a stronger kiwi, which has outperformed all G10 currencies during the past five months. The local currency got a tailwind over the weekend with the cooling trade tensions between the US and China, and that strength has put pressure on investors who had bet on a weaker kiwi to exit their positions.

"We've had a run of quite strong data surprises: GDP, CPI, and jobs, in particular, was the one that gave it a boost," said Imre Speizer, Westpac Banking Corp's head of NZ strategy.

He said the kiwi has a target of 70.50 US cents since its strong rise since October - a gain of more than 5 cents.

New Zealand's two-year swap rate decreased 1 basis point to 2.07 per cent and 10-year swaps dropped 5 basis points to 2.85 per cent.

The kiwi fell to 4.7652 Chinese yuan from 4.7815 yuan yesterday and increased to 78.78 yen from 78.43 yen. It advanced to 54.60 British pence from 54.07 pence and increased to 61.16 euro cents from 60.86 euro cents. The trade-weighted index was at 75.40 from 75.10.