8 Apr 2015

Dollar 'rollercoaster' not over

9:45 am on 8 April 2015

It's been a "rollercoaster ride" for the New Zealand dollar against the Australian currency, but economists still believe it will reach parity soon.

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Photo: 123rf

The Kiwi reached a record high of 99.78 cents at the weekend, as some investors predicted the Reserve Bank of Australia (RBA) would cut its already low Official Cash Rate to 2 percent.

In the event, the central bank decided to leave it on hold at 2.25 per cent, and the Australian currency rose on the announcement while the New Zealand dollar dropped.

The Kiwi was yesterday down almost two cents against the Australian, falling to 97.76 cents, and this morning is trading around 98.3 Australian cents.

Nick Tuffley, chief economist at ASB Bank, said despite it being a "rollercoaster ride" for the exchange rate, the Kiwi could reach the Australian dollar at any time.

"What we've seen over the last day or so is that you can have a two cent range over the space of 24 hours," he said.

"We do think we'll be hitting parity a little bit later this year. It can happen pretty much any day."

According to Tony Alexander, chief economist at Bank of New Zealand, there is about a 90 percent chance the Kiwi will be on par with the Australian dollar within the next four weeks - and it could potentially go a bit higher.

Mr Alexander said the factors driving the Kiwi up against Australia's currency had not changed, despite the RBA's decision yesterday.

Australia's economy remained sluggish, with iron prices plummeting from $US120 per tonne this time last year to below $US47.

"And there is still a very good chance that interest rates will get cut again at least one more time in Australia," he said.

"I'd view this as a wee bit of a pause until we approach parity level."

But Mr Alexander could not say what may be the trigger - it could be data from either side of the Tasman or the RBA's next meeting in May.

Regardless, he said the Australian currency would bounce back in the end.

"Eventually the Australian economy will prove itself superior to New Zealand, but we're just in a slightly better position at the moment," he said.