Helen Clark, the New Zealand prime minister, said on Wednesday that both countries wanted to build on the 23-year-old Closer Economic Relations (CER) agreement, which has relaxed trading conditions between the neighbours.
But Clark and John Howard, the Australian prime minister, said there were no plans for a single trans-Tasman currency, saying it was important for both countries to maintain their economic independence.
Speaking after talks with Clark in Canberra on Wednesday, Howard said: "We are two sovereign, independent, close, friendly countries; but we are separate countries."
He said that to give up control of the currency would be a big step.
Trade between Australia and New Zealand was worth A$14.5billion ($10.7billion) in the 2004/05 financial year, up 10% on the previous year. Australia accounts for 22% of New Zealand's imports, and 21% of its exports.
Clark said the CER was one of the world's most comprehensive free trade agreements, but Australia and New Zealand wanted to go further and add an investment chapter and co-operate more on banking regulation and business law.
"We are two sovereign, independent, close, friendly countries; but we are separate countries"
John Howard, the Australian prime minister
Clark said: "Both our governments have looked far beyond CER to the development of a single economic market, with the goal of enabling seamless business activity across our borders."
Australia and New Zealand have had a historically strong bilateral relationship since Australian and New Zealand forces fought together under the Anzac banner at Gallipoli in Turkey in 1915.
Both countries have forces in Afghanistan and the Solomon Islands, and both are signatories to the three-nation Anzus security alliance with the United States, although New Zealand has been suspended from the pact since its decision in 1986 to ban visits by nuclear-powered or armed ships.
Australia and New Zealand are also in joint free trade talks with the 10 members of the Association of South East Asian Nations.