SYDNEY: The Australian dollar is at a record slide versus New Zealand’s currency, shedding faster end to parity with the Kiwi.
The local currency hit 104.22 New Zealand cents overnight, and continues to trade only just above that level.
The previous record low of 104.32 was reached in December 2005.
The Aussie has been weakening this year as commodity prices fall and the potential for further interest rate cuts remains alive, while the Kiwi has been strengthening as the New Zealand economy expands quickly and its central bank has raised interest rates by 1 percentage point to 3.5 per cent.
However, Westpac’s global head of currency strategy Robert Rennie thinks support for the Kiwi has been overdone.
“The market probably finishes this year a bit too pessimistic in the outlook for Australia and probably a bit too positive in the outlook for the New Zealand dollar, so I’m not really a believer in the idea that we can get close to parity,” he told ABC News.
Mr Rennie said the dairy industry, which has been a key plank of New Zealand’s economic outperformance, has seen steep price falls over recent months, while Australia’s commodity price slump may be nearing its trough.
“Particularly the weakness in dairy prices that really started to accelerate through the third quarter and into the fourth quarter will actually see softer growth in first and second quarter of next year in New Zealand,” he said.
“The markets are probably a bit too pessimistic on the outlook for iron ore prices and, interestingly, in the last two or three trading sessions … iron ore futures that are traded in China have rallied by about 7 per cent in the last two or three trading sessions.”
While Westpac is not expecting the Aussie dollar to weaken further against its trans-Tasman counterpart, it is expecting both currencies to weaken further against the greenback once the US Federal Reserve begins raising interest rates.
However, Robert Rennie said that is not likely to happen early next year.
“It’s probably going to be later on in the year before the Fed actually moves to begin to raise rates, and what that tells us is that the Australian dollar is probably going to spend some time round about the 80 to 84 [US cent] region in the first quarter of next year,” he added.
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