“So that’s why the Reserve Bank of Australia has started tightening,” he said.
“They’ve already delivered a couple of hikes and our economists think there’s another three hikes to come this year.”
Adding to the Aussie dollar’s strength is its energy sector, which stands to benefit from the high oil and gas prices resulting from the war.
Last month, the Reserve Bank of Australia (RBA) raised its benchmark policy rates for a second straight time, pushing its target rate to 4.1% in response to persistent inflationary pressure.
By comparison, the Reserve Bank of New Zealand has been cutting rates since the middle of last year, when its Official Cash Rate (OCR) was at 5.5%.
The OCR now sits at 2.25% but the market is pricing in a hike in July, with a total of three pencilled in for the year.
Speizer said the RBA was among the first of the main central banks to start tightening.
“That means their yields will be higher relative to others, and the yield spread has a direct impact on the cross-rate.”
New Zealand markets have only recently come around to the prospect of a higher Official Cash Rate.
“Markets started jumping on that in the last quarter of last year but even so, the strength of the Aussie economy and its resilience has surprised people positively,” Speizer said.
“Our economic recovery is fledgling and it’s quite fragile so, it needs a lot of evidence to unfold to prove its worth.
“As of now, yes, people think the economy will probably recover, but there’s a question mark on just by how much and how resilient it is.”
Overlaying the interest rate markets has been the war in Iran, which started at the end of February.
“You could argue that Australia will be more insulated from the effects of the war than New Zealand is because Australia has much better energy resources.”
Since the war started, the New Zealand/Australian dollar cross-rate has fallen to A82c from A83.5c.
US dollar
Against the US dollar, the New Zealand dollar is holding, having bounced off US57c earlier this month to trade at around US59c today.
For the most part, the US dollar has been stronger as investors seek safe havens while the conflict in the Gulf continues.
Speizer said the New Zealand dollar’s fall against the Aussie augurs well for the inbound Australian tourism trade, particularly for the upcoming ski season.
Stats NZ data show visits from Australia came to 1.54 million in the February year, up by 123,000 on the previous year.
The direction of travel for the New Zealand/Aussie dollar cross-rate looked to be down.
“Eventually, we will see a turning point when things calm down,” Speizer said.
“Once our growth does take hold, then we can accelerate quicker than the Aussie economy,” he said.
“I don’t see that happening until late this year at the earliest, but it’s more likely to be next year’s story.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter – your essential weekly round-up of all the business news you need.