The New Zealand dollar pared gains in local trading after investors' appetite for the transtasman currencies was dimmed by Australian federal government plans to cut spending by A$6.8 billion to keep the budget in the black.
Yesterday the kiwi traded at 75.50 US cents at 5pm from 75.51 cents at 8am, up from 75.03 cents at 5pm on Monday. It rose as high as 75.67 cents during the local session.
The Australian government is facing a A$37.1 billion deficit in the currency financial year, blowing out from a forecast of A$22.6 billion six months ago, as a deteriorating economy saps tax revenue. That's forced Treasurer Wayne Swann to slash spending in a bid to meet a forecast surplus of A$1.5 billion in the 2012/13 financial year.
That helped sap demand for riskier, or higher-yielding, assets after rumours of an International Monetary Fund bail-out for Italy stoked relief European policymakers may be able to prevent the break-up of the Euro-zone.
"The budget did show things in Australia as not looking quite as rosy," said Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. "The Aussie and the kiwi went pretty well and have pulled back" after Monday's rally, he said.
