New Zealand manufacturers are likely to be hurt hard as the kiwi continues to strengthen against the Australian currency, Craigs Investment Partners broker Chris Timms says.
The dollar surged yesterday after the Reserve Bank signalled interest rate hikes were on the horizon, increasing the lure of local assets.
Reserve Bank governor Graeme Wheeler left the official cash rate at 2.5% on Thursday but ruled out any cut, indicating the OCR would stay the same until the end of the year before it is lifted to 2.75%, perhaps in January or March of 2014.
At same time, signals from the Reserve Bank of Australia are for a rate cut, which would take the official rate down to 2.5% as New Zealand's rate moved up.
The kiwi rose to a six-week high of US81c and surged to a four-and-a-half year high of A87.74c.
Mr Timms said it was likely the kiwi would test A90c levels soon, bringing more hurt for manufacturers who sold into Australia. Australia this week regained its status as New Zealand's largest export market by volume while China had the highest value of sales.
The increasing differential between New Zealand and Australian interest rates would attract attention from overseas investors looking for a return above the near zero they could get in Japan, the United States and Europe.
Mr Timms said manufacturers would start hedging the dollar against the Australian currency to give themselves some protection but he predicted a significant strengthening in the currency before the end of the year.
Westpac senior currency strategist Imre Speizer said the Reserve Bank had explicitly shifted its guidance to a tightening one.
''That is the first time we have seen this explicit tightening bias stated in words. It was quite hawkish. That was a surprise to pretty much everybody in the market.''
US dollar weakness was also supporting a higher kiwi after a US report on core durable goods failed to meet expectations, suggesting GDP forecasts would be revised downwards, he said.
The New Zealand dollar has gained 9.8% against the Australian dollar so far this year as weakness in the Australian economy pointed to lower interest rates while a revival in New Zealand signalled rates were going higher.
