By ELLEN READ markets writer
The New Zealand dollar is racing ahead against the US and Australian currencies - but don't book those overseas holidays just yet because the moves are exaggerated by a thin end-of-year market.
In the past few days the kiwi has hit 51.5USc and 91.03Ac, buoyed by further US dollar weakness and New Zealand's continued good news story and attractive interest rates.
While holidaymakers may be smiling, the surge is not helping exporters. Export Institute president Murray Davies said that while most who exported to the US would have hedging in place, this was not the norm for exports to Australia.
That exchange rate usually stayed within an 80-86Ac range, he said, meaning the spike was hurting. Most affected at the moment were summer fruit exporters, who were in mid-season.
On the flip side, tourism to the United States is likely to gain from the stronger kiwi, in the view of one travel retailer.
"We book more holidays to Disneyland when the dollar is strong," said Flight Centre marketing manager Shane Parlato.
He said the strength in the dollar was good news for New Zealand travellers, who were notoriously cost-conscious.
So what has pushed the kiwi up?
Bank of New Zealand currency strategist Stu Ritson said further US dollar weakness was a factor.
Late last week, a fresh wave of US dollar selling took the euro to a three-year high of US$1.026. The greenback has also touched new lows against the Canadian, British, Japanese, and Australian currencies.
The kiwi is now 24 per cent above where it started for the year against the US dollar. The Australian dollar is up just 11 per cent against the greenback - with the kiwi riding on the back of a stronger local economy.
The kiwi has been a major beneficiary of greenback weakness, as attractive interest rate differentials in our favour have seen investors switch from US dollar-denominated assets and build up with New Zealand dollar assets.
Fear that the US will attack Iraq continues to stifle its currency, along with speculation that commitment to its strong dollar policy may ease since the change of leadership in the White House economics team.
BNZ's Bayley said that while these factors were behind the move, the spike came on low volume and so was exaggerated.
With the market like this, further volatile trade is likely over the holiday season.
This is especially likely in the week ahead, with the markets looking to two key statistics - current account data on Thursday and gross domestic product on Friday.
Dollar's rise not the whole story
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