Aussie dollar may lose battle against NZ rates

THE AUSTRALIAN dollar may hit a historic low against the New Zealand dollar and could even go below parity next year, according to a foreign exchange broker.

Currently, one Australian dollar buys $1.049 New Zealand dollars – just above the $1.042 low reached in 2006. From New Zealand, the exchange rate is just above A95c.

The exchange rate was as low as A73c in early 2011.

There has been a rapid rise in the kiwi dollar from less than A90c to A95c since the start of November.

The main reason is because the Reserve Bank in New Zealand is expected to raise interest rates, with a growing economy, while Australia may cut interest rates because of their relatively weak economy.

Australia is New Zealand’s top export market, overtaking China in importance in the past few months, and its most important source of tourists. Exports to Australia have slipped about 4 per cent to $2.3 billion in the past three months, while exports to China have crashed 40 per cent to $1.8b in the same period, compared with a year ago.

A higher cross rate with Australia will mean a greater headwind for New Zealand exports across the Tasman. More than 1.2 million visitors to New Zealand arrived from Australia in the past year, far and away New Zealand’s largest tourist market.

Getting closer to parity with the Australia dollar will make it cheaper for New Zealanders to visit Australia but will make the return trip more expensive for Australians.

Parity would be a ‘‘historic event’’, said ThinkForex analyst Matt Simpson.

‘‘I expect the Aussie dollar will have a battle around parity with the kiwi during the first half of next year.’’ And the Aussie could ‘‘easily reach’’ 95 New Zealand cents, he said. The underlying reason was that Australia and New Zealand were in separate phases of their economic cycles.

‘‘The New Zealand Reserve Bank is looking to increase rates and the Reserve Bank of Australia has hinted at potential for rate cuts.’’

This month the Reserve Bank left the NZ rate at 3.5 per cent but said ‘‘some further increase is expected . . . at a later stage’’, despite low inflation and the dairy price slump.

On the American front, Simpson said a rally to 85 US cents was not out of the question.