NZ dollar tipped to rise further

Overnight the Kiwi hit US73.79c, its highest level since July 2008 after the Reserve Bank of Australia chose late yesterday to increase official interest rates by 0.25 percent, the first large and rich economy to do so since the start of the global economic downturn reports NZX.  This led to some strong gains in the Australian dollar against the greenback but had only a modest effect on the Kiwi, which was trading back at around US73.30c this morning, according to Westpac research economist Dominick Stephens. Stephens noted the effect of the Australian rate increase wasn't immediately felt on the New Zealand dollar, with the overnight rise more likely due to a continuation of ongoing themes such as increasing risk sentiment overseas. "A better outlook for commodities was probably more important for the currency than the RBA's move, which after all, was only a month earlier than was expected," said Stephens. Also, data from the New Zealand Institute of Economic Research out yesterday showed business confidence surged to highs not seen since 1999. BNZ currency strategist Mike Jones said the Australian rate increase did not have as much of an impact as he might have expected, but noted the New Zealand dollar has had a strong run in recent weeks so this may be a sign the rally is running out of steam.  The rate increase would also provide another leg of support for the Kiwi dollar, meaning there is increased resistance against dollar declines. Meanwhile, BNZ chief economist Tony Alexander is predicting the Kiwi will eventually return to pre-recession highs of US82c unless "something truly unexpected happens".  However, this will probably not occur within the year. Jones said BNZ was expecting the currency to sit at US75c at this time next year.  This was assuming the global economy and local economies continued to recover."That being said, the sheer speed of recent gains leads us to believe probably a near-term correction is in order for the New Zealand dollar in the next few weeks," he said.This was based on the view that global equity markets had improved very rapidly since March and a correction there would lead to a correction in currencies as well.