NZ dollar an 'illusion of reality'

  • 27/10/2015
NZ dollar an 'illusion of reality'

By Tina Morrison

The New Zealand dollar may finish 2015 at the lowest year-end level in seven years and be at a similar place at the end of next year, according to the latest BusinessDesk survey.

The kiwi, which recently traded at 67.80 US cents, is likely to close this year at 63 cents and next year at 62 cents, according to the median forecast of 19 currency analysts surveyed by BusinessDesk. That would be the lowest level since 2008 when it ended the year at 58.35 US cents.

Still, there's little prospect that the local currency, the 10th most traded in the world, will actually remain at the same level over the coming year, analysts say, noting the kiwi will probably dip lower towards the middle of next year as traders price in Federal Reserve interest rate hikes and with the potential for dry El Niño weather conditions to hit agricultural production in the local economy.

"It's a bit of an illusion of stability," said Bank of New Zealand currency strategist Raiko Shareef. "Today, more than any time probably in the past couple of years, there is greater uncertainty about where currencies will go - there are so many open questions about central bank policy over the next six months."

BNZ has pencilled in the likelihood of the kiwi dipping to 60 US cents mid next year, although Shareef says it could fall as low as 55 cents should the Fed prove more aggressive on interest rate hikes or if the Reserve Bank of New Zealand continues its easing cycle to offset El Niño-related drought.

The kiwi is then likely to pick up again towards the end of 2016 as a rally in the US dollar matures even as the Fed continues hiking through 2017, he said.

Meanwhile the trade-weighted index, a broader measure of the local currency, is likely to decline to 69.6 by the end of this year, from its current level of 72.99, according to the survey.