Dollar gains vs Au dollar after data points to diverging economies

The New Zealand dollar gained against its Australian counterpart after economic data from the two nations pointed to diverging fortunes for their respective economies.

The kiwi rose to 96.22 Australian at 5pm in Wellington from 95.53 cents yesterday. It advanced to 75.62 US cents from 75.46 cents at 8am, and 75.29 cents yesterday.

New Zealand government figures showed an unexpected trade surplus in January and a new record gain in annual net migration as fewer New Zealanders depart for Australia and as more Indians arrive to study. New Zealand's strong net migration has been a key feature the Reserve Bank has been watching, as it is seen as placing pressure on an already hot housing market in the country's biggest city, Auckland.

Meantime, Australian figures showed capital expenditure in plant, equipment, machinery and buildings fell a bigger than expected 2.2 percent in the fourth quarter, while the first estimate for the 2015/16 of about A$109.8 billion was also below forecasts. That stoked pessimism about the Australian economy, where its central bank is expected to cut interest rates further in a bid to revive activity.

"Strategists are extremely bearish on the Australian economy, and the capex data proves that," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "Given the outlook on the Aussie economy and the Aussie dollar, the risk of a move towards parity looks a lot more likely - whether or not it gets there is a different story, but it's certainly hard to fight."

The Reserve Bank of Australia will review monetary policy next week, and traders have priced in a 52 percent chance of a cut to the 2.25 percent cash rate, according to the Overnight Index Swap curve. New Zealand's central bank will review policy the following week, and only has a 6 percent chance of a cut priced in.

Six of 13 strategists and advisers in a BusinessDesk survey on Feb. 17 predict the kiwi dollar will reach A$1 this year.

New Zealand-based Fonterra Cooperative Group, the world's biggest dairy exporter, today affirmed its forecast milk payout to farmers at $4.70 per kilogram of milk solids, saying recent gains at its GlobalDairyTrade auctions weren't enough to warrant an increase.

The local currency gained to 89.95 yen at 5pm in Wellington from 89.38 yen yesterday, and climbed to 4.7333 Chinese yuan from 4.7108 yuan yesterday. It increased to 66.51 euro cents from 66.33 cents, and was little changed at 48.63 British pence from 48.65 pence. The trade-weighted index gained to 78.27 from 77.92 yesterday.

New Zealand's two-year swap rate fell to 3.535 at 5pm Wellington from 3.55 yesterday, and the 10-year swap rate dropped to 3.6975 from 3.78.

(BusinessDesk)