© Mike Jones
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Mike Jones
Currency Strategist at Bank of New Zealand
How would you evaluate the current New Zealand Dollar performance?
The recent NZD performance can only be described as strong. The currency is currently around 25% above its long-run average or around 30% above its PPP equilibrium. While the high NZD partly reflects positive cyclical fundamentals like high NZ commodity prices, the currency still looks a shade overvalued.
What is your outlook for NZD for the 2nd and 4th quarter? What drivers might cause currency move?
Our outlook is for a near-term pull-back in the NZD, reflecting the fact it is over-extended on the basis on near-term fundamentals like commodity prices, relative interest rates and risk appetite. However, moving further into the year we expect the NZD to re-strengthen as New Zealand economic growth begins to ramp up and the RBNZ raises interest rates.
How the economy of New Zealand was affected by strengthening of NZD by 11% in the past year. What were the major gains and losses for the economy ?
The higher NZD is certainly negatively impacting exporter incomes, but high prices for NZ commodity exports are providing a partial offset. Importantly, a large share of NZ's manufactured exports are shipped to Australia, and the NZD/AUD exchange rate is quite cheap on a historical basis. The high currency has also lowered the cost of imported items, helping the RBNZ achieve its price stability goal.