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Kiwi/Aussie parity could be back on cards

NZN 6/06/2017 Rebecca Howard

The diverging fortunes of the Australian and New Zealand economies are once again fuelling talk of parity between the two nations' currencies.

But traders don't expect it to happen overnight.

The kiwi dollar gained about 4 per cent against the Aussie in May as the Australian dollar was hit hard by weak iron ore prices and news that major commodities importer China had its sovereign credit rating cut.

The New Zealand dollar, meanwhile, pushed higher on a raft of positive data, including a 44-year high in the first quarter terms of trade, improving business confidence and news that Fonterra predicted a higher milk payout for 2018.

New Zealand's budget also painted a better picture as an improving fiscal position allowed for increased benefits and net debt reduction while in Australia a new levy was imposed on the banking system to help plug a budget hole.

New Zealand's official cash rate is also steady at 1.75 per cent while Australia's cash rate is at 1.50 per cent, adding to the kiwi's allure.

The kiwi recently traded at 95.72 Australian cents.

"Recent weakness in the AUD reflects the market adopting a fairly negative disposition toward the Australian economic outlook," said Bank of New Zealand currency strategist Jason Wong.

Mr Wong forecasts the kiwi dollar will hit parity with its Australian counterpart by early 2019 "but given the typical error bands around forecasts, this could easily occur much earlier," he said.

Tim Kelleher, head of institutional foreign exchange sales at ASB Bank, said sliding hard commodity prices and the weaker outlook for the Australian economy versus the New Zealand economy meant parity "is looking more likely this time round".

It's not the first time there's been talk of a parity party.

In late 2005, bars in Wellington reportedly had champagne on ice but never got to pop those corks. In April 2015 the Kiwi hit around A$0.9979, the closest it has gotten to parity since the two currencies free-floated in the 1980s.

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