The New Zealand dollar is likely to move higher as New
Zealand's interest rate advantage with other nations remains
New Zealand's official cash rate is likely to rise to 3.5% on
July 24 and be at 3.75% by the end of the year.
In contrast, the Australian cash rate seems stuck at 2.5%,
the US rates remain near zero and Europe has introduced
negative interest rates in an effort to get banks lending to
help boost economic activity.
The New Zealand dollar was within striking distance yesterday
of its post-float high against the US dollar, due mostly to
weakness in the greenback and a slowly recovering US economy.
During the afternoon, the dollar reached US87.92c, short of
its high of US88.42c high set on August 1, 2011.
The dollar reached US88.05c after Fitch reaffirmed the
country's AA rating and upgraded its outlook to positive from
The dollar, which had gained almost 6c against the US
currency so far this year, was trading at US87.98c at 5pm.
The dollar was floated in 1985.
BNZ currency strategist Raiko Shareef has lifted his
near-term forecasts for the dollar.
''With New Zealand dollar momentum waning, we would consider
any break towards US89c as attractive for importers.''
However, exporters might need to be patient. Any near-term
dip below US86c was likely to be opportune, he said.
The BNZ has a cross rate of US88c for this week, US84c for
September, US80c for December and US78c for March next year.
June was marked by two blows for any bearish NZD/USD views
which were delivered by two central banks.
The Janet Yellen-led US Federal Reserve looked eager to keep
monetary conditions easy for as long as possible.
Dr Yellen was dismissive of signs of inflationary pressure,
despite the lift in nearly every US price measure during the
second quarter, Mr Shareef said.
''All up, the impression remains Yellen intends to abstain
from raising rates until very late in the second half of
In New Zealand, the Reserve Bank's firm stance on normalising
monetary policy caught the market off guard.
A high dollar and some softening in domestic activity
indicators fed a growing sense the bank might need to
moderate its projected policy path for interest rate rises,
Instead, the June Monetary Policy Statement focused on
stronger-than-expected net migration flows and showed a rate
track nearly identical to the one presented in March.
Two more rate official rate rises were expected this year in
July and December.
''Happily, the flow of US data is adding to scepticism the
Fed can afford to keep policy loose for so long.''
In May, core inflation had already accelerated to the rate
the Fed expected only by the end of the year.
Some upgrades to those forecasts could come in September and
US interest rate expectations should also be brought forward.
Also, June's strong employment report had analysts
questioning whether the Fed was already behind the curve, Mr
More economic traction was expected in the fourth quarter,
when the Fed finally ceased purchasing bonds and the market
turned its attention fully to the prospect of US rate rises.
By then, the precipitous fall in dairy prices would have
started making its way into New Zealand's official terms of
trade statistics, adding to the case for a downward move in
the value of the dollar, he said.