Dollar recovery likely to be short

The dollar's recovery over the past fortnight is unlikely to hold back its slide for too long, currency dealers say.

After falling steeply at the start of the year, the kiwi has bounced from a low of just under US60c in late March to more than US63c yesterday. It closed at US63.21c.

Deutsche Bank currency strategist John Horner said the currency had risen on the back of signs that the economy was not as weak as many observers had believed.

"There are some indications that things aren't quite as dire as might have been feared previously," he said.

"That's helped it recover from what, in retrospect, was quite an oversold position."

Data this week showed that the number of house sales rose sharply to more than 10,000 in March, suggesting the housing market may not be cooling as quickly as expected.

Also, February retail sales rose 1.9 per cent, seasonally adjusted, from January, easing fears the economy had slipped into recession.

Yesterday's consumer price index, showing that inflation remains strong, also lent support to the currency.

Mike Symonds, head of foreign exchange sales at Bank of New Zealand, said: "There's been quite a marked turnaround in sentiment in the last seven to 10 days."

He said currency market players had generally been expecting the first interest rate cut around the middle of the year but the stronger economic data meant rate cuts might not start until later in the year.

"The market is reassessing the chance of interest rate cuts here in New Zealand."

Symonds said also helping the kiwi was a fall in the US dollar over the past few days because of higher oil prices.

The kiwi might hold on to some of its gains for the next few months but was unlikely to bounce above US64c.

Ultimately, it was likely to fall below US60c and BNZ had a year-end forecast of US58c.