The Australian dollar has fallen to a two-week low against the New Zealand dollar as the country's Reserve Bank hike interest rates for the second-straight month and maintained a hawkish outlook for the economy.
The local unit, which was already reeling from a softer-than-expected first-quarter inflation reading on Wednesday, slipped further against its New Zealand counterpart on Thursday and has lost more than NZ1¢ over the past day.
It was fetching as low as $NZ1.077 early Thursday.
The cross rate is tipped to move sideways over the next few weeks, amid expectations that the RBNZ's next hikes are already priced into the New Zealand dollar and with a quiet period for Australian data before the May federal budget, Westpac senior currency strategist Sean Callow said.
"The Kiwi has probably benefited about as much as it will from the expectation of aggressive tightening, so the [Aussie's] rally from those lows under $NZ1.05 is [the result of] both the change in the RBA's outlook and some questions over whether the RBNZ hikes as much as expected.
"At this stage, until we get the next big shock from either side of the Tasman, I think we are probably talking a rough range of $NZ1.065 on the downside and a topside of maybe $NZ1.095."
The Australian dollar could also be due for a period of volatility over the next week, despite the lack of data on the domestic front, amid a raft of international economic releases. The currency remained stable against the US dollar late Wednesday and early Thursday after it weakened by more than three-quarters of US1¢ on the back of the CPI data and a further slowdown in Chinese factory activity. It was fetching US92.95¢ at mid-day.
The US is set to release new figures on March durable good orders late Thursday, while next week, the world's largest economy will release first estimates of GDP and PMI (Performance of Manufacturing Index) manufacturing data.
The Bank of Japan will hold a press conference on interest rates on Wednesday, and European countries such as Germany and Spain are due to publish their latest unemployment and retail sales data.
"The Aussie is normally slightly more sensitive [to the US dollar]," Mr Callow added.
"If there is a big move in the US dollar, and if we do get some traction with US yields and better economic data, the Fed may be a bit more confident over the next month or so - with is the way we are leaning - and that's probably going to chip away more at the Aussie than it does the Kiwi."
