Kiwi dollar sets off on a bull run

The New Zealand dollar has reached a five-year high against its Aussie counterpart.

The New Zealand dollar, also known as the kiwi, is on a roll. It has reached a five-year high against its Australian counterpart, the Aussie, and now buys 89 Australian cents.

It's largely a question of interest-rate expectations. Solid growth, fuelled by strong consumption and a construction boom based on repairing the damage after the Christchurch earthquake of 2011 suggests that the next move in interest rates in New Zealand will be up.

Another sign of economic health is that net migration to New Zealand is running at a four-year high. In Australia, interest rates could fall soon.

One problem is that trade with China accounts for 5% of Australian GDP, and Australian metals exports will be less sought after now China is trying to promote consumption rather than investment in infrastructure, says Delphine Strauss in the FT.

New Zealand's commodity exports comprise 3% of GDP but are mostly agricultural, so it should continue to benefit from Chinese consumption. The Chinese boom in infant formula brands looks set to boost milk prices for New Zealand producers.

Bank of America Merrill Lynch's Adarsh Sinha expects New Zealand's interest rates and commodity prices to stay higher than Australia's. BNP Paribas reckons the bull run in the kiwi dollar is set to continue.

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