By BRIAN FALLOW
WELLINGTON - The New Zealand dollar remained unloved yesterday, at one point falling to US47c, its lowest level since September 1986.
ANZ chief economist Bernard Hodgetts said the dollar was not helped by comments by Finance Minister Michael Cullen.
Dr Cullen said that while local financial market commentators regularly described the dollar as undervalued and put it anywhere between US55c and US60c by the end of the year, "funnily enough an almost exactly opposite sentiment is held by the overseas financial analysts I talk to."
He said the current account deficit would keep downward pressure on the currency and that any monetary tightening was more likely to manifest itself in higher interest rates.
Mr Hodgetts said Dr Cullen's comments came a time when trading volumes in the New Zealand dollar were thin ahead of today's monetary policy announcements by the Reserve Bank and the US Federal Reserve.
"And it continues to suffer guilt by association with the Aussie dollar," Mr Hodgetts said.
The Australian dollar is at 20-month lows, approaching US57c compared with US66c in January.
The current account deficit hit $8.1 billion or 8 per cent of gross domestic product in the March quarter.
The classical remedy for a balance of payments problem of this magnitude is a weak exchange rate, which stimulates exports and makes imports more expensive, and higher interest rates to dampen down domestic demand.
Bank of New Zealand chief economist Tony Alexander said: "New Zealanders have spent up large over the last few years and part of the cost of that has to be borne by exporters facing a higher currency than otherwise would have been the case. If the domestic economy turns out to be flattish over the next couple of years while exporting accelerates, that is a very positive thing.
"Hopefully the weak exchange rate will assuage the concerns businesses have about the Reserve Bank pushing the currency through the roof and they will start investing more in the export sector."
The NZ dollar recovered late yesterday to end at US47.3c.
Cullen's comments drag Kiwi down
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