Australian Dollar Hits 13-Year High Against New Zealand Dollar
The Australian dollar has climbed to its strongest level against the Kiwi since 2013 as diverging interest-rate expectations strengthen demand for the local currency
The Australian dollar has reached a 13-year high against the New Zealand dollar, with one Aussie dollar buying 123.2 New Zealand cents. It is the strongest level for the Australian currency against its trans-Tasman counterpart since April 2013, highlighting the growing divergence between the monetary policy outlooks of Australia and New Zealand.
A major driver behind the move is the changing expectations for interest rates in both countries. Markets are increasingly anticipating further tightening from the Reserve Bank of Australia (RBA), while the Reserve Bank of New Zealand (RBNZ) has adopted a more cautious stance. The differing outlooks have helped increase the relative appeal of the Australian dollar.
RBA rate hike expectations strengthen
Market pricing currently points to a significant possibility of another Australian interest rate increase. There is a 74% chance of an RBA rate hike on September 29, according to the latest LSEG pricing.
The RBA is widely expected to raise rates for a fourth time, either in September or November, while markets are also considering the possibility of another increase early next year. The prospect of higher Australian interest rates can support the Australian dollar by improving the relative return available from Australian assets.
Recent comments from RBA officials have also been viewed as relatively hawkish, reinforcing expectations that policymakers could maintain a tighter approach if inflation pressures remain elevated.
RBNZ takes a different approach
The interest-rate outlook in New Zealand is considerably more restrained. The RBNZ has indicated that its current interest-rate settings are approaching neutral, meaning rates are getting closer to a level that neither stimulates nor significantly slows economic activity.
Markets currently assign an 80% probability that the RBNZ will leave rates unchanged at its October 28 meeting. The contrast with expectations for further Australian tightening has contributed to the widening gap between the two currencies.
This difference in monetary policy expectations has become an important factor for the AUD-NZD exchange rate, with traders increasingly positioning around the possibility that Australian rates remain higher relative to those in New Zealand.
Aussie-Kiwi gap reaches a new milestone
The Australian dollar's move to 123.2 New Zealand cents marks a significant milestone for the currency pair. The level takes the Aussie to territory not seen for more than a decade and reflects how quickly expectations around interest rates can influence currency markets.
For investors and businesses operating across Australia and New Zealand, the exchange-rate move is worth watching as the two central banks take increasingly different paths. Further changes in rate expectations could continue to influence the relative strength of the Australian and New Zealand currencies in the months ahead.
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