The New Zealand dollar is tipped to hit parity with the Australian dollar within six months following the Reserve Bank's decision to lift official interest rates.
The New Zealand Reserve Bank today lifted its official cash rate by 25 basis points to 2.75 per cent, making it the first central bank in the developed world to exist record-low borrowing costs.
HSBC is predicting New Zealand's Reserve Bank to continue to increase interest rates, predicting a full 100 basis point increase this year, as it moves to contain inflation.
HSBC chief economist Paul Bloxham said by the second half of this year, the NZ interest rate hikes should push the Kiwi dollar to parity with the Aussie.
"That would be the first time in 40 years that it happened if it does arrive," Bloxham, a former Reserve Bank of Australia official, told the Sydney Morning Herald.
''But they'll pop the champagne because the NZ dollar gets to parity but they'll have a big hangover the next day because Australia is still NZ major trading partner.
''A high currency will make their traders less competitive.''
After the RBNZ's decision the NZ dollar rose to above 84 US cents and is fetching 94.5 Aussie cents.
But while a stronger Kiwi dollar will cause some pain to NZ exporters, Bloxham said it made sense that the currency was so high.
''You have got to keep in mind that the economy in NZ is growing very strongly and it's quite broad based and because of that in a world where the rest of the developed world is picking up but not particularly strongly it makes sense that the NZ dollar is very high.''
- Sydney Morning Herald