“The economic fundamentals have certainly been in Australia’s favour over the last little while and [I] think that justifies the move that we have seen.
“Yet there is a darkness-before-the-dawn, green-shoots thematic in New Zealand, and that’s probably going to limit the downside.
“The current level of the exchange rate is going to be a bit of a rude shock for anyone going on holiday to Australia.
“The flipside of that is that Australians who are coming to New Zealand will have a little more money to spend and they are certainly a key target market for us.”
ASB senior economist Mark Smith said the Aussie markets were pushing back on the likelihood of rate cuts as the data there had remained strong.
“They had a pretty strong employment report last week and I think that was the catalyst,” he said.
Seasonally adjusted data last week showed the Australian unemployment rate fell to 4.3% in October, while employment increased.
“You’ve also had pretty hawkish RBA commentary sort of saying we’re more likely to not cut rates, given where we are at the moment,” Smith said.
“We [in New Zealand] are still looking at rate cuts and there’s a 25-basis-point cut fully priced in for November,” he said.
The RBA’s official rate is 3.6%.
“The rate differential has just widened and … it’s really reflective of where both economies are at the moment,” Smith said.
“The New Zealand economy is probably recovering, but we’re climbing out of a bigger hole while the Australian economy has sailed through reasonably well.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
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