Aussie dollar up on rousing investment outlook, NZ$ lags

SYDNEY: The Australian dollar advanced on Thursday as figures showing a very strong outlook for business investment augured well for economic growth in coming years, keeping upward pressure on interest rates.

In contrast, the New Zealand dollar was still weighed down by the devastating earthquake this week that has seen investors give up on any thought of rate hikes this year.

The Australian dollar gained three quarter of a cent to $1.0084, before steading at around $1.0065. Near-term support seen around $1.0013, with resistance at $1.0095.

The boost followed strong estimates for business investment in Australia for the next couple of years, outstripping even the most optimistic forecasts in a bullish sign for future growth.

Planned spending for 2011/12 jumped to a massive A$132.7 billion and supports the Reserve Bank of Australia's (RBA)upbeat outlook on the local economy. The RBA has been counting on a boom in mining investment to drive economic growth for some years to come.

"As the Reserve Bank Governor likes to remind us, you can't have an investment boom and a consumption boom at the same time without giving a lot of inflation," said Joseph Capurso, strategist at Commonwealth Bank.

"That means rate rises are certainly on the agenda," he added.

Markets are pricing a total tightening of 31 basis points for the next 12 months, but still sees no chance of rate hike at the RBA March meeting next week.

The Aussie was also buoyed by local exporters, model funds as well as retail investors buying via electronic trading platforms, according to traders.

The NZ dollar firmed at $0.7484, having hit a two-month low of $0.7460 on Wednesday. Still, the kiwi remains under pressure as analysts suspect the economy is probably in a technical recession.

Commonwealth Bank's Capurso said he expected the kiwi to hit 72 cents in the next few weeks and anticipated a 50 bps rate cut by the Reserve Bank of New Zealand at the next review on March 10 to help out the economy.

"Because the quake hit twice the same city, it will take even longer for production or economic activity to recover, so the RBNZ will have to cut rates," he said, while referring to a first quake that happened in November last year.

Market pricing indicates an 88 percent chance of a rate cut in March and no tightening over the next 12 months.  The divergence with the Australian outlook kept the Aussie up near a two-month peak at NZ$1.3462.