The New Zealand dollar has risen to a three-week high against the Australian currency as investors bet the fundamentals for the kiwi are more favourable than for its Australian counterpart this year.
The kiwi was trading at 92.76 Australian cents at 8am on Wednesday, from A92.50 cents at 5pm on Tuesday, and touched A92.98 cents overnight. The local currency edged up to US82.77 cents from US82.62 cents.
The New Zealand dollar has advanced 16% against the Australian dollar in the past year as a reviving local economy contrasts with a slowdown in Australia, AAP reports.
New Zealand's Reserve Bank is expected to raise interest rates as early as this month while Australia could cut rates this year, prompting investors to place so called "long" bets on the kiwi, anticipating it will rise against the Aussie.
"Offshore fund managers put on some of their bets for the year in the first week in January, so obviously long kiwi short Aussie is still going to be the preferred trade at this stage," said Tim Kelleher, head of institutional FX sales New Zealand at ASB Bank.
A report on Tuesday morning showed dairy product prices fell 0.8% in the first global dairy trade auction for 2014, led by skim milk powder while rennet casein made a new record high.
Despite the fall, dairy prices remain highly elevated from year ago levels and New Zealand commodity prices continue to provide support for the New Zealand dollar, Kymberly Martin, markets strategist at Bank of New Zealand, said in a note.
On Wednesday morning, the New Zealand dollar was trading at 60.78 euro cents from 60.63 cents at 5pm on Tuesday.
It advanced to 50.43 British pence from 50.38 pence and rose to 86.50 yen from 86.37 yen. The trade-weighted index rose to 78.35 from 78.19.