NZ Dollar's Strength: Interest Rates and Safe-Haven Appeal

Tuesday, 11 December 2012, 10:42 am
Press Release: ASB Bank

Interest Rates And Safe-Haven Appeal Seen As Behind NZ Dollar’s Strength

• Businesses view interest rate differentials and safe-haven inflows as the main drivers of the high NZ dollar – quantitative easing not seen as the key driver.
• Businesses expect China and the US will be the regions having the most influence on the NZ dollar over the coming year.

According to the latest ASB Institutional Kiwi Dollar Barometer, New Zealand businesses see interest rate differentials and safe-haven investment flows as the key drivers of the NZ dollar’s current strength.

ASB Chief Economist Nick Tuffley says, “It is no surprise that interest rates are seen as a significant reason for the NZ dollar’s strength given current global rates. Businesses also evidently perceive NZ as a safe place for foreign investors to park their money, which may relate to the comparative calm of NZ’s economic and fiscal positions. However, in times of extreme global crisis, we often see flight to the US dollar and the Japanese yen as money returns home.”

Relatively fewer respondents saw commodity prices as the key driver. Even fewer saw quantitative easing as important. “Despite recent media stories debating the links between the US Federal Reserve’s quantitative easing and the strength of the NZ dollar, only a minority of respondents cited this policy as the key driver of the NZ dollar’s strength,” says Mr Tuffley.

When asked which region would have the most influence on the NZ dollar over the coming year, the majority of respondents put weight on China and the US. Mr Tuffley says, “These economies are the two largest, so are very influential for global economic fortunes.”

“Just over 40% of exporters saw China as the region having the most influence. Importers anticipate it will be the US, with just over 41% picking that region.”

The Barometer shows there is consensus among businesses that the NZ dollar will peak against the US dollar in June 2013. The overall survey result was for a peak of 86.2 cents in June before easing to 82 cents at the end of 2013. As in the previous two surveys, exporters had lower overall expectations, with a peak of 85.8 cents in June, before easing to 80.2 cents by the end of 2013. In contrast, importers expected a slightly higher peak of 86.6 cents in June but less depreciation by year-end, to 84.0 cents.

Mr Tuffley says, “Businesses’ NZ dollar expectations are now reasonably close to ASB Economics’ forecasts. ASB Economics also expect the NZD/USD to peak in six months, but at a lower peak of 84 cents. Beyond that, we expect the NZ dollar to gradually ease to 82 cents by the end of 2013, as economic activity in the other major economies starts to pick up.”

Click here to read: NZD_Barometer_Dec_12_FINAL.pdf

ENDS

© Scoop Media

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