NZ dollar will rebound, says economist

The New Zealand dollar is still hovering below US79c as investors head for the safe haven of the US currency.

The dollar took another tumble this morning below US78c but then stabilised in the mid-morning at around US78.20c.

From New York, Finance Minister Bill English was reported as welcoming the news as relief for New Zealand exporters.

Reserve Bank governor Alan Bollard has been repeatedly telling financial markets the New Zealand dollar is too high and even though it is helping keeping a lid on inflationary pressures the high value of the currency against the US dollar was having a “dampening effect” on economic growth.

The fall in the New Zealand dollar, which began in the early hours of Thursday morning New Zealand time and took another tumble overnight, is more due to global nervousness than the local economy.

The fall hit other smaller economies, especially those strongly based on commodities, with the Australian dollar falling below parity with the US dollar.

Even normally safe haven commodity prices, such as gold and oil, fell this morning.

“This is about risk aversion, and a lot of peripheral currencies are being negatively affected, if I can put it that way, ” said ASB Bank economist Christina Leung.

The fall would be welcomed by New Zealand exporters but the New Zealand dollar will probably not stay this low for long, she said.

“What we’re seeing now is a lot of nervousness and uncertainty and New Zealand and Australia are seen as risky assets, so demand has fallen for them as people move back into the US currency.”

The paradox – that the flight to the US currency comes following a negative report about prospects for the US economy – is due to the fact there are no other safe havens for investors to move into, she said.

“There is not really any other asset to replace the US currency. The alternatives are pretty sparse out there. New Zealand, in terms of economic growth, is not doing too badly compared to most other economies, but with the kind of uncertainty that’s out there at the moment investors look for safe havens.”

But the underlying strength of the New Zealand economy means the currency will probably pick up again, she said.

Prospects for growth mean “the dollar should stay relatively high – we have it holding up above US80c again.”