Higher commodity prices and stronger global equities moved the Australian dollar higher against the US dollar last week, but it fell against the New Zealand dollar to its lowest level since 2009.
As domestic equity markets were closed for Anzac Day, the Australian dollar edged ahead from US$1.02 to US$1.03 by Thursday afternoon, helped by the gold price reversing almost half of its recent losses and copper prices up 4 per cent in two days.
Westpac currency strategist Jonathan Cavenagh said the dollar had been braced for bad news as it fell from US$1.05 in recent times. "If you start to see stability return to commodity markets, then that is going to be a very welcome development for a commodity currency like the Australian dollar."
The New Zealand dollar is more in favour. The Australian dollar has fallen to NZ$1.20, its lowest since 2009.
The Kiwi dollar has been helped by the relatively hawkish stance of the Reserve Bank of New Zealand. While markets expect the Reserve Bank of Australia to cut rates, the RBNZ is expected to leave rates on hold.
At its monthly meeting on Wednesday, New Zealand's central bank left the official interest rate on hold and said economic growth "has picked up".
The official rate has been stable at 2.5 per cent for more than two years. RBNZ affirmed its intent to keep the cash rate on hold for the rest of the year.
The yield advantage that Australia holds over the rest of the world could be lost to New Zealand, Cavenagh said.
"At some stage this year or early next year, the RBA and RBNZ cash rates are probably going to converge and even cross over with each other, that is, New Zealand rates are going to be above Australian rates for the first time in a very long time," he said.
Macquarie Bank's David Forrester said the New Zealand central bank might not let the currency get too much higher.
"If it gets to NZ$1.20 - certainly by our fundamental metrics - it is looking stretched," he said. "The key question on that is whether they will intervene. We think that if the New Zealand trade weighted index heads back towards its record highs, they probably will intervene in the currency."
He said the Australian dollar's run-up had been helped by better global risk sentiment . "You did have positive equities overnight," he said, referring to markets in Europe and the US.
This week, the Australian dollar will be buffeted by domestic data and international developments, including the outcome of the latest US Federal Reserve meeting.
The flow of liquidity into the US system has been blamed for depressing the US dollar and boosting the Australian. Any sign the money tap could be turned off will likely cause the US dollar to rise and the Australian to fall.