NZ dollar hits post-float high

UPDATE Friday 8.30am: Forex traders cheefully ignored Reserve Bank Governor Alan Bollard's statement yesterday that they had over-reacted to yesterday's decision to keep New Zealand's official cash rate at an all-time low of 2.5%.

In early morning trading, the NZ dollar hit a post-float high of US82.9c just before 4am before falling back. At 9am, it was trading at US88.44c.

THURSDAY 5.30pm: Foreign exchange markets "slightly over-reacted" yesterday by pushing up exchange rates for the New Zealand dollar against the American dollar by about half a cent, Reserve Bank of New Zealand (RBNZ) Governor Alan Bollard said.

The NZ dollar hit US82.42c in early afternoon trading from US81.52c at 8am, but slipped back at US81.96c at 5pm -- apparently in response to Dr Bollard's "over-reacted" comments to Parliament's finance and expenditure select committee just before 2pm.

"The market has reacted by pushing up interest rates a little bit, but pushing up exchange rates notably by about half a cent," he said at the time. "We believe they have slightly over-reacted".

The increase in the NZ dollar exchange rate seen over the past few months was understandably driven by increasing international prices for commodity exports.

"However we started off thinking that the NZ dollar was nevertheless over-valued and we still hold that view," he said. Some of that was driven by factors outside New Zealand control, such as falls in the value of the US dollar.

Asked whether how high exchange rates were hurting manufacturers, Dr Bollard said the story "hasn't been too bad" around manufactured exports.

"There's damage around import-substitution in manufacturing, there's damaging in tourism and some other services," he said.

Exporters selling into Australia but sourcing their raw materials in US dollars were probably doing very well from the exchange rates, he said.

The central bank was seeing more confidence around the business sector, but not so much of an improvement among householders who remained focussed on reducing debt, Dr Bollard told the MPs.

"As a consequence of that ... we now expect household savings to go positive next year, for the first time in quite some years."

The first half of this year had low economic growth levels, there would be higher growth in the second half, and next year should show high growth, with "intense activity" rebuilding in Christchurch contributing half of the expected 4 percent growth in gross domestic product (GDP).

The RBNZ left the official cash rate (OCR) at 2.5 percent, but Dr Bollard predicted that it would need to lift over the next two years to offset an expected rise in underlying inflation as GDP picked up.

Asked about a budget projection of 170,000 jobs to created in the next four years, Dr Bollard said he expected growth in primary sector jobs, and in jobs associated with reconstruction in Canterbury, and some Auckland growth related to infrastucture.

"Beyond that, a fairly broad base -- with the exception of the Wellington bureaucracy," he said. The RBNZ was not able to say whether all this would add up to 170,000.