The New Zealand dollar is heading for a 0.9 per cent drop against its Australian counterpart this week, the sharpest weekly decline in five months, after benign local inflation stoked bets New Zealand's central bank may cut rates to revive a slowing economy.
Better data across the Tasman has seen markets reduce expectations for lower rates in Australia.
The kiwi was little changed at 79 Australian cents at 5pm in Wellington from 79.04 cents. It fell to 81.89 US cents from 82.09 cents, and is poised for a 0.3 weekly gain.
Government figures this week showed New Zealand's consumer prices rose at their slowest pace in 13 years in the third quarter, giving the Reserve Bank headroom for looser monetary policy.
At the same time, better-than-expected jobs growth across the Tasman stoked optimism the RBA won't have to cut rates as deeply as feared.
Traders are betting the Reserve Bank of New Zealand will cut 26 basis points from the official cash rate over the coming year and 75 basis points by Australia's central bank, according to the Overnight Index Swap curve.
New Zealand's central bank will review monetary policy next week and is expected to keep the benchmark rate at 2.5 per cent.
Australian third-quarter inflation figures will be released next week.
Trading volumes were light in the local session with investors not looking for much to come out of the second day of the European Union leaders' summit.
The kiwi edged down to 62.67 euro cents from 62.73 cents.
The trade-weighted index decreased to 72.87 from 72.93, and is poised for a 0.3 percent weekly decline. The kiwi advanced to 51.01 British pence from 50.89 pence and was virtually unchanged at 64.96 yen from 64.97 yen.
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