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BusinessDesk: NZ$ could hit 90 US cents in early 2013 as greenback faces headwinds, ANZ's economists forecast. Your view?

BusinessDesk: NZ$ could hit 90 US cents in early 2013 as greenback faces headwinds, ANZ's economists forecast. Your view?

By Jonathan Underhill

The New Zealand dollar may rise to 90 US cents next year as the greenback is held back by a ballooning US current account deficit and low interest rates, according to economists at Australia & New Zealand Banking Group.

That would break through the highs of July-to-August last year to a new record since the kiwi dollar was allowed to trade freely in 1985.

The nation’s relatively high interest rates – the official cash rate of 2.5 percent looks fat compared to about zero offered by the US Federal Reserve - are part of the appeal. Ten-year government bonds yield more than 4 percent while the comparable Treasury note yields around 2 percent.

“Our central case has the NZDUSD going to 0.90 cents,” economists led by Cameron Bagrie said in their quarterly assessment of the New Zealand economy.

“This is premised on the structural challenges the US economy faces,” they say. “Not only does the US run a large current account deficit, but its interest rates are low, putting it in the ‘wrong’ part of the spectrum.”

“In short, it is difficult to mount an argument as to why investors should buy into a low-yielding debtor currency,” they said. While the US economy would recover, it may be via a widening current account gap.

“Emerging Asian currencies will do far better out of a US recovery than the USD itself, ironically, because they export so much to the US,” they said.

The only currency the kiwi dollar isn’t likely to outrun is Australia’s, a currency backed by higher interest rates and more liquidity, the economists said.

“Australia is viewed by global investors as a larger, more liquid, and more dynamic market to invest in – and they have been rewarded handsomely,” they said.

ANZ’s fair value for the New Zealand dollar is now 70 US cents and against the Australian dollar has fallen to 80 cents. The kiwi recently traded at 83.35 US cents and 78.13 Australian cents.

The nation’s biggest lender, ANZ said the economy may grow 1.9 percent in 2012, accelerating to 3.2 percent in 2013.

Among ANZ’s key assumptions are:

• The value of earthquake reconstruction work is equivalent to 0.75 percent of GDP per annum over the next five to seven years.
• Commodity export prices decline in the coming year but remain at historically high levels.
• Dubai oil prices trade within a US$95-to-US$105 per barrel range over the forecast period.
• The net outflow of migrants begins to reverse over the next few years.

ANZ says a neutral level for the OCR would be 4 percent to 4.5 percent.

Unemployment would remain at around 6.3 percent through this year, gradually easing over the next three years.


We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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I'd be interested in previous forecasts from all the banks, on fx and interest rates. They tend to be completely wrong, or as BE would say, a complete "guess" :-)
Oh, and what about NZ's accumulated current account deficit, the elephant in the room?

Oh, and what about NZ's accumulated current account deficit, the elephant in the room?
Hi Raf
Wrong elephant.. The one in the US is magnitudes larger and when they decide to manage perceptions we are insignificant.  
I firmly believe the factoids mentioned in the article referencing rate differentials etc are hardly important anymore. If Bernanke, under tutelage from the cabal that constitutes TPTB, trumpets the direction of the Reserve Currency, the money wil follow.
'Twist' is an operation to manage the USD down against counterparty currencies - witness the relentless rise of the Yen versus USD, the fundamentals as noted are irrelevant.    

Neutral Oct more like 2.0. To drop nz$ need Oct at 1.5 in line with US & UK etc

OCR. Predictive txt!

Last set of predictions from 9 - 12 months ago from bank economists were:  Look out sharply rising interest rates  -  OCR ramping up to 6% with floating mortgages at 9 - 10%  ,  quick, quick you better panic and fix ....  the economies on fire,  GDP set to reach 4-5% , the Chch rebuild going to pour billions into the economy, wow - inflation is going to climb higher higher   -   it's all go go ....    [guess you get the picture by now]  
Nope, didn't happen.  Thos MIS modelling Excel Spreadsheets are missing something?! Oh yeah, there's a World out there,  what? Beyond NZ?  

How long can exporters keep going for at these high NZD levels? I'd like to see the government do something to bring this down. Drop the OCR? It would mean more expensive TV's, fuel... but at least employment will stay as it is.

Govt says No need for exporters.  Just keep NZ$ high which keeps the populace happy with cheap flat screen TVs & petrol etc,  - if we need serious production then we just invite overseas investors ... 

Hmm - numbers are changing and moving faster  - daily - overnight - even so decimal points.

People that predict currency have as much in common with those that predict earthquakes. The thing is that noone knows, and just as many people will predict it to go one way, as to go another. 

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Days to the General Election: 40
See Party Policies here. Party Lists here.