New Zealand's currency has yet to reach a level of what money experts say is "parity" with its Australian counterpart. But there are other factors to weigh that may alter this course for the kiwi.
The Australian dollar (AUD) has been down around 5 percent against the NZD after it hit a one-year peak just this November as the two countries' financial measures began to vary. Currency movements in key foreign exchanges elsewhere have the potential to back this pace.
The Reserve Bank of Australia has in the past weeks had traders pricing in at least a single interest rate reduction, despite positive figures coming from the economy's jobless rate and inflation. Some financial institutions are even expecting two tranches of rate cuts.
Contrary to predictions, the central bank's further easing has declined significantly since it gave traders a shock of sorts in November by keeping rates untouched. Money experts are pricing in around 61 percent probability of one rate reduction by New Zealand's reserve bank.
Price action continues to indicate that fiscal policy is very crucial to the NZD/AUD currency pair at the moment, Sean Callow, senior currency planner at Sydney-based Westpac Banking Corp said. The country's unusually solid performance in recent trade-in consonance with New Zealand is "not enough to change the picture," he pointed out.
The kiwi was trading at 64.63 US cents from 64.64 in New York late Monday, and from 64.77, early Tuesday. The currency's trade-weighted index was pegged at 71.65 points from 71.60. According to Mike Shirley, a Kiwi Bank dealer, trading has not been very "exciting" as far as the latest headlines are concerned.
New Zealand's currency had been down as low as 64.52 US cents and it has caught up in the "global risk-off mood," Shirley stated.
China's central bank, on the other hand, has been very supportive, infusing a good volume of liquidity prior to the resumption of its markets on Monday after a 10-day hiatus to give way for the celebration of Lunar New Year, but still, the Shanghai Composite index ushered the opening bell sluggish at 8 percent.
Meanwhile, analysts expect an intense interest movement in New Zealand's central bank's perception of how the recent bushfires in Australia is impacting the economy.
Based on the latest figures, consumer and business confidence have waned, which sets the stage for dovish views from Lowe on the kiwi. This is seen to also give the Australian currency a "helping hand lower," Lowe stressed.
