The New Zealand dollar is likely to retest its highs of last year against the Australian currency by August, Craigs Investment Partners broker Peter McIntyre says.
The kiwi has been creeping up against the Australian dollar recently, getting to nearly A96c on Friday.
It reached a high of A99.61c on April 21 last year.
There were two key dates in August which would have a major impact on the value of the respective transtasman currencies, Mr McIntyre said.
The reserve banks of both nations were due to review their official cash rates.
The Australian OCR was 1.75% and the New Zealand rate was 2.25%.
If the Reserve Bank of Australia cut further, and the New Zealand central bank remained unchanged, it would push up the value of the kiwi, he said.
"The elections in Australia are important, along with inflation expectations in both countries.
"The Australian equity market has a lot of talk about banks and if funds flow out of banks, that will have an impact as investors sell the aussie dollar to exit.''
New Zealand was seen as a more stable market than Australia, Mr McIntyre said.
There was a cash rate differential in New Zealand, along with a political stable environment.
In Australia, Prime Minister Malcolm Turnbull was facing an election, there were weaker iron ore prices and uncertainty in sharemarkets because of banks and a large number of commodity stocks.
"On balance, New Zealand is seen as a better bet than Australia,'' he said.
BNZ currency strategist Jason Wong said inflation and inflation expectations mattered a lot for currency markets, both in the long run and short run.
In New Zealand, inflation was 0.4% and in Australia, it was 1.3%.
New Zealand's inflation expectations had been dropping broadly in line with the downturn in actual inflation.
The market-based measure of New Zealand inflation expectations had fallen to just 0.9%, suggesting little confidence in the New Zealand Reserve Bank being able to meet its 2% inflation target mid-point over the long term, he said.
On the positive side, all survey measures of inflation expectations had shown some signs of stability in recent months.
The fall in New Zealand inflation expectations relative to Australia went a long way in explaining why a gap had opened up when comparing the New Zealand dollar-Australian dollar cross rates with the New Zealand-Australia two-year swap rate differential.
The dollar cross rate was a lot stronger than implied by the tracking of relative interest rates. Since mid-2015, New Zealand rates had fallen by more than Australian rates but that did not seem to be reflected in the exchange rate.
Inflation and inflation expectations mattered a great deal to currencies.
The economic rationale was a lower inflation track required a stronger exchange rate to maintain an economy's purchasing power parity.
Since currencies were forward looking, falling inflation expectations in one country relative to another would induce a stronger exchange rate.
"There is strong evidence of purchasing power parity applying in the long-run but we have demonstrated it can also apply in the short-run.
"Real interest rates matter more than nominal interest rates in driving currencies.''
Mr McIntyre said it would be interesting to see how low New Zealand Reserve Bank governor Graeme Wheeler would cut the OCR.
The bottom range was likely to be 2%, in August.
At the same time, Australian economists were forecasting the central bank to cut to 1.25% by the end of the year.
"If that happens, we will retest the highs of the New Zealand dollar.''
