The New Zealand dollar was on track for a solid weekly gains on Friday as an attractive interest rate advantage lifted it to all time highs against its Antipodean neighbour, and tantalisingly close to parity. The Australian dollar sank as deep NZ$1.0290 at one stage before clambering back to NZ$1.0356 as short sellers took profits above the psychological $1.0000 level.
The Aussie has shed almost four NZ cents since the Reserve Bank of Australia (RBA) cut rates to 2.25 percent early this month, widening the gap with New Zealand's 3.5 percent rate. Markets are fully priced for a further easing in Australia, while the Reserve Bank of New Zealand has signalled it is firmly on hold for the foreseeable future. "While there is arguably too much easing priced into the AUD, markets easily overshoot," said Westpac analyst Imre Speizer.
The kiwi eased back a touch on the US dollar to $0.7522, having hit a four-week high of $0.7574 on Thursday. It remains around 0.9 percent higher for the week. Dealers said sellers were expected above $0.7600, while technical resistance lies at $0.7569, the 23.6 percent retracement of the kiwi's fall since mid-July.
The Australian dollar was steady around $0.7800, having bounced from a $0.7757 low hit overnight only to shy away from sell orders around $0.7840. The currency has been in a $0.7644 to $0.7877 range for the past couple of weeks as investors weighed the risk that rates could be cut next month. New Zealand government bonds retreated in line with US Treasuries, pushing yields up around 3 basis points. Australian government bond futures likewise eased, with the three-year bond contract off 3 ticks at 98.140. The 10-year contract dipped 3.5 ticks to 97.4600.
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