By Rebecca Howard
WELLINGTON, July 13 (Reuters) - After trouncing Australia on the rugby pitch, New Zealand might also be close to tackling its bigger trans-Tasman rival in the foreign exchange markets with its currency within striking distance of parity with the Aussie dollar.
Typically considered the poorer cousin of the two antipodean currencies - both sought for relatively high yields - New Zealand's more favourable investment conditions are now attracting capital that would otherwise go to Australia.
The kiwi dollar, nicknamed for the country's native flightless bird, is benefiting from solid economic data and a benchmark interest rate of 2.25 percent, the highest among developed countries.
The Aussie, meanwhile, is weighed by political uncertainty, a less attractive interest rate - at a record low of 1.75 percent - and the possibility of losing its coveted triple A rating. Bagrie, ANZ's Chief Economist for New Zealand in Wellington, expects to be "popping champagne at some stage" as political headlines take the shine off Australia's strong investment credentials.
"Momentum is with the New Zealand dollar," he said, although he expects parity to be hit over the next couple of years rather than overnight.
The kiwi traded at 0.9568 NZDAUD=R late Tuesday after hitting a 14-month high of 0.9677 last Friday.
The currency pared some of its gains after Australian Prime Minister Malcolm Turnbull claimed victory in a cliff-hanger election this week, ending fears of a hung parliament.
However, Ben Alexander, Chairman of Ardea Investment Management, a Sydney-based fixed interest boutique managing NZ$6.5 billion ($4.72 billion) in assets, thinks the currency can still hit parity "quite easily".
A reluctance by the Reserve Bank of New Zealand to cut interest rates has redirected yield-hungry capital away from Australia, Alexander said.
While a high currency would normally stoke talk of rate cuts in New Zealand, the central bank has recently flagged soaring property prices as a reason to hold rates, adding to the currency's allure. SOON?
To be sure, an outperforming currency strengthens national pride and those long the kiwi more than it does the real economy: the higher currency is good for imports and outbound tourists, but bad for exporters, a major driver of the dairy-producing economy.
And it's not the first time there has been talk of a parity party.
Unlike the 2015 Rugby World Cup final in Twickenham, England, where New Zealand overwhelmed Australia 34-17 to become world champions for a record third time, so far there's no champagne.
In late 2005, bars in Wellington were rumoured to be stocking up for the big event but hopes were dashed when it failed to push through.
In April 2015 the Kiwi hit around A$0.9979, the closest it has gotten to parity since the two currencies free-floating in the 1980s. Prior to that the two hit parity in 1972. Once again, however, the champagne stayed on ice.
Alex Sinton, a senior currency dealer with ANZ in Auckland, said a party might be on the cards although in previous years "it was a tough ask to check timing, order the appropriate drinks etc although there was plenty of talk."
Even if no actual champagne is uncorked "I am pretty sure there will be some celebrating and some commiserating on such a move to parity," said Sinton. ($1 = 1.3785 New Zealand dollars)
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