NZ dollar hits new record against Aussie, stoking parity speculation

The New Zealand dollar touched a new record against the Australian dollar overnight, renewing speculation about the possibility of parity, as investors are lured to New Zealand's better growth prospects and higher yields.

The kiwi hit a post-float high of 97.82 Australian cents, and was trading at 97.04 cents at 8am in Wellington, from 97.17 cents at 5pm yesterday. The local currency touched a two-month high of 76.63 US cents, and was trading at 76.50 cents at 8am from 75.89 cents yesterday.

New Zealand's higher relative interest rates has meant the local currency has outperformed most others against the greenback as investors search for yield in an environment where more than 20 central banks have cut rates this year, while New Zealand remains on hold. Investors are favouring the kiwi over the Aussie with traders pricing in only a 10 percent chance New Zealand's Reserve Bank will cut its 3.5 percent interest rate at its next meeting, compared with a 45 percent Australia will lower its 2.25 percent rate, according to the Overnight Index Swap Curve.

"Against the backdrop of relatively 'strong' fundamentals, the RBNZ has indicated that interest rates are now in "a period of stability," Jane Foley, Rabobank International's London-based senior currency strategist said in a note. "The RBNZ along with the Federal Reserve and the Bank of England are the only major central banks not to have either cut rates or used quantitative easing in recent months and since actions tends to speech louder than words, the RBNZ has been finding it difficult to convince investors that its currency should be weaker. "

Over the next 12 months, the Aussie is likely to decline against the US dollar at a faster pace than the kiwi given the weaker outlook for the Australian economy, said Foley, who expects both Australasian currencies to decline towards 70 US cents in the next 12 months as an improving US economy leads to interest rate hikes. She expects the kiwi/Aussie cross rate to move towards parity by the end of 2015.

Today, traders will be focused on the release of the Chinese HSBC manufacturing PMI this afternoon to gauge how Asia's largest economy is tracking. Manufacturing data is also due in Europe and the US overnight.

In Australia, the ANZ Roy Morgan consumer confidence survey is scheduled for release, and Australian Reserve Bank assistant governor (financial systems) Malcolm Edey is scheduled to speak at the ASIC annual forum in Sydney.

The New Zealand dollar advanced to a new record of 70.74 euro cents and was trading at 69.88 cents at 8am from 70.20 cents yesterday. German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras haven't yet reached agreement over a Greek bailout during talks in Berlin.

The kiwi touched a two-month high of 51.24 British pence, and was trading at 51.19 pence at 8am from 50.80 pence yesterday. The local currency also reached a two-month high of 91.82 yen and was trading at 91.64 yen at 8am from 91.07 yen yesterday. The trade-weighted index advanced to 79.66 from 79.33 yesterday.