NZ dollar dominance continues

20:50, Apr 11 2013

The New Zealand dollar broke through the US86 cent mark overnight as global economic optimism prevailed.

This morning the kiwi was traded at US86.34 cents, up from US85.90c at 5pm yesterday, a high not seen in more than 20 months.

On the Trade Weighted Index of major trading partners' currencies it was 79.00, slightly down from 79.04 at 5pm yesterday, still hovering around new post-float highs.

New Zealand's strong economic growth and appealing assets continue to attract overseas investors, with global stimulus packages spurring the kiwi onwards.

The local housing market continues its rise too, turning in its best performance since the boom times of 2007, with sales volumes racing up in March and prices up more than 8 per cent in a year.

However, in a blunt warning about the risk of rising house prices, Finance Minister Bill English has cautioned that a growing bubble is likely to burst, hitting the economy and households hard.

English also said yesterday the Government was on track to achieve a surplus by 2014-15 despite the drought, which was estimated to slice 0.7 per cent off growth and cost up to $2 billion.

Westpac market strategist Imre Speizer said the recent surge in the currency could be traced back to the Bank of Japan's unprecedented quantitative easing pledge from last week.

Japan's central bank promised to inject about US$1.4 trillion (NZ$1.6t) into the economy within two years to end decades-long deflation, and achieve its 2 per cent inflation target.

Speizer said he expected the kiwi to correct during the day, after recent accelerated movements.

However, the kiwi would continue to head towards the 2011 post-float high of US88.40c earlier than expected, he said.

The New Zealand dollar continued its strong performance on the crosses recently trading at 81.87 Australian cents, up from A81.35c yesterday evening, and at 65.89 euro cents. It traded at 86.18 Japanese yen this morning, and at 56.11 British pence.

Speizer said the New Zealand Food Price Index would be released today, but was unlikely to move markets.

The risk would come from United States producers and consumer data released later in the session, with movement happening if the data did not meet expectations, he said.

The kiwi was expected to trade between US86.75c and US86c today, dropping as low as US84.50 during the coming week, Speizer said.