There is strong potential for the value of the New Zealand dollar to rise, the Bank of New Zealand said yesterday.
In its latest Strategist Report, the bank said that although there are conflicting views on the direction of the US economy, and that the outlook for the New Zealand dollar is finely balanced, it expected it to rise to almost US45c by year's end and continue to appreciate by as much as 10 per cent over the following 12 months.
The bank listed nine factors that favour a stronger dollar - among them relative inflation and interest rates, relative trends in different economies' balance of payments, purchasing power indicators and the strength of international commodity prices.
"It is always difficult to know what the catalyst for any currency re-rating may be but we suspect the key to an ongoing appreciation of the New Zealand dollar will be our relative current account position."
New Zealand's annual current account deficit has already narrowed to 4.8 per cent of gross domestic product in the first quarter of this year, from over 7 per cent of GDP a year earlier.
The bank said it expected the deficit would narrow to just 3 per cent of GDP by the first quarter of next year.
"Importantly, this will leave New Zealand with a current account imbalance that is less than the United States, which should see its deficit rise to around 5 per cent of US GDP soon."
- NZPA
BNZ tips big gain for kiwi
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