Bloomberg News

Aussie Fading Rate Gap Signals More Kiwi Gains: Chart of the Day

June 27, 2012

AUSTRALIAN NEWS ZEALAND DOLLAR

Barclays expects New Zealand’s currency to strengthen to NZ$1.26 against the Australian dollar in the next six months, a level the so-called kiwi last reached in April. The rate was little changed at NZ$1.2727 as of 9:17 a.m. in Sydney, and the kiwi has gained 3.7 percent in 2012 against 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Photographer: Jack Atley/Bloomberg

The New Zealand dollar, the best performer among 10 developed-market currencies this year, may extend gains against its Australian counterpart as the interest- rate advantage of the larger nation disappears, according to Barclays Plc. (BARC)

The CHART OF THE DAY shows the so-called Aussie dollar falling against New Zealand’s currency as the difference in their expected cash rates shrank, reaching the lowest since June 2009 last month. A Credit Suisse AG index based on interest-rate swaps indicates the Reserve Bank of Australia will lower its key interest rate, now at 3.5 percent, by 94 basis points in 12 months. That would bring it closer to New Zealand’s record-low rate, which was cut to 2.5 percent in March 2011 after the nation’s worst earthquake in 80 years.

“New Zealand has a very unique driver of growth coming in the next few years from the rebuilding of Christchurch,” said Hamish Pepper, a currency strategist in Singapore at Barclays and formerly an economist at New Zealand’s central bank from 2007 to 2011. “This will provide a very large stimulus for the New Zealand economy, which the RBNZ will eventually respond to through tighter policy.”

RBNZ Governor Alan Bollard, who’s due to step down Sept. 25 and hand the job to former World Bank official Graeme Wheeler, has kept the cash rate unchanged to stimulate the recovery from the temblor. Australia’s benchmark borrowing costs were cut by 50 basis points in May and 25 basis points this month as that nation’s central bank sought to counter the effects of Europe’s deepening sovereign-debt crisis.

New Zealand’s gross domestic product rose 1.1 percent in the three months ended March 31, the fastest quarterly expansion since 2007, Statistics New Zealand reported last week. That was almost three times the median estimate of economists in a Bloomberg News survey.

Barclays expects New Zealand’s currency to strengthen to NZ$1.26 against the Australian dollar in the next six months, a level the so-called kiwi last reached in April. The rate was little changed at NZ$1.2727 as of 9:17 a.m. in Sydney, and the kiwi has gained 3.7 percent in 2012 against 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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