The New Zealand dollar could reach parity with the US dollar, says AMP Capital's director of investment strategy and chief economist Shane Oliver.Speaking to a briefing in Wellington, Dr Oliver said the Australian dollar is not far off reaching parity wit
The New Zealand dollar could reach parity with the US dollar, says AMP Capital’s director of investment strategy and chief economist Shane Oliver.
Speaking to a briefing in Wellington, Dr Oliver said the Australian dollar is not far off reaching parity with the greenback and the New Zealand currency could follow suit.
“Parity is in sight for the Australian dollar and quite possibility in sight for the New Zealand dollar as well,” Dr Oliver said during a presentation on the fund manager’s outlook for investors.
“That is going to make life tougher for manufacturers, if it is not tough enough already.”
Asked about whether this would happen for the New Zealand currency Dr Oliver said it would take longer than Australia and he was not making a firm prediction – but added that it is “a reasonable possibility.”
“I would not call it a forecast, but it is a realistic prospect.”
The reasons were on both sides of the ledger – the United States dollar is likely to head further downward given the weaknesses of that economy and the recent burst of quantitative easing is likely to push it down further over coming years.
The other side is the strengths of the New Zealand economy – the long-term decline in commodity prices turned around a decade ago and they are still climbing.
Australia has a broader base of those commodities than New Zealand does but there are sufficient strengths here to put the currency at a naturally higher level.
The last time the New Zealand dollar was at parity with the greenback was in 1973, during the era of fixed exchange rates.
AMP’s outlook is at odds with that of the Reserve Bank, which is forecasting a drop in the currency, on a trade-weighted basis, from the end of this year.
Problems for RBNZ
A continued high dollar would not be completely unwelcomed by the Reserve Bank, however: a higher dollar would help keep import prices low as the expected recovery gathers steam next year and should serve as a very good firm lid on inflation.
That would, in turn, mean the Reserve Bank will not need to raise the official cash rate so soon. At the moment the signals are in line for no rises until March at the earliest: Dr Oliver is picking June before the central bank moves to lift the rate above its current level of 3%.
That does, however, assume one thing: that the economy does continue to recovery in the face of a higher-than-anticipated currency.
