Reserve Bank lifts its forecast for strong dollar

Failure by the Reserve Bank to try to talk down the value of the New Zealand dollar on Thursday has left markets more comfortable with the prospect of a higher-value currency for most of next year.

Governor Graeme Wheeler, in his first monetary policy statement since being appointed to the job, indicated the bank had revised up substantially its forecasts for the New Zealand trade-weighted index - a basket of the currencies of the country's main trading partners.

The recent further rise in commodity prices has probably left the bank a bit more relaxed with the high dollar.

BNZ currency strategist Mike Jones said that after consistently having a stronger currency view than the Reserve Bank for the past year, his forecasts were now more or less in alignment.

The tone of the monetary policy statement left him even more comfortable with a higher dollar view.

''If the bank was ever going to shift to an easing bias, or at least flag the possibility of rate cuts in the future, it was then. The fact that they didn't betrays a clear reluctance to cut rates.''

Clearly, the Reserve Bank had faith in its forecasts for a pick-up in New Zealand growth and inflation next year, he said.

The BNZ had revised up its NZD-USD forecasts for the second half of next year. Previously, the BNZ had expected the currency to gradually head lower through that period.

''We now see less chance of this occurring and have lifted our end-2013 forecast from US78c to US81c accordingly.

''It's not a story of additional marked strength in the currency, more a stronger-for-longer view,'' Mr Jones said.

Any dips in the NZD-USD cross rate should continue to be viewed as buying opportunities.