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Kiwi hits two-month high against Aussie

NZ Newswire logoNZ Newswire 9/05/2017 Paul McBeth

A new $5 note. © Mark Tantrum/Getty Images A new $5 note. The New Zealand dollar hit a two-month high against its trans-Tasman counterpart on Tuesday.

This came after weaker than expected consumer spending in Australia saw investors rethink the interest rate paths for the two nations.

The kiwi rose as high as A93.94c, trading at 93.80c as at 5pm in Wellington from 93.48c Monday. The local currency slipped to US69.02c from 69.23c.

The Australian dollar dropped almost half a US cent after Bureau of Statistics figures showed retail sales unexpectedly shrank last month.

This cemented the view that the Reserve Bank of Australia won't be in a hurry to raise the target cash rate from 1.5 per cent.

Meantime in New Zealand, rising consumer prices and higher long-term inflation expectations have investors anticipating RBNZ governor Graeme Wheeler may signal an earlier interest rate hike to the 1.75 per cent level it's currently at than previously anticipated.

The yield on New Zealand's 10-year government bond was recently at 3.12 per cent, compared to 2.7 per cent in Australia.

"Two negative numbers from Australia really does push back the chance of seeing anything from the RBA any time soon," said Alex Hill, head of dealing Australasia at HiFX in Auckland.

"As a result, the kiwi/Aussie is higher with the interest rate differentials stretching out."

Investors will keep tabs on the Australian federal budget, but Mr Hill doesn't expect that to have much influence on the cross rate, which is largely being driven by the rate differentials.

New Zealand's two-year swap rate was unchanged at 2.34 per cent, and 10-year swaps increased 1 basis points to 3.44 per cent.

The local currency edged up to 78.17 yen from 78.04 yen Monday and fell to 4.7662 Chinese yuan from 4.7769 yuan. It traded at 63.11 euro cents from 63.10 cents and declined to 53.28 British pence from 53.41 pence.

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