Dollar tipped to scale 75USc

Martin Poulsen, head of investor services at First NZ Capital, is picking the kiwi to move to 74-75USc in the next four months. Picture / Fotopress

The New Zealand dollar is set to enter uncharted territory with forecasts seeing it heading to 75USc in the months ahead.

Last week, the kiwi hit 72USc and, with little sign of a pullback in US dollar weakness, most currency players back it to move higher.

Since the currency was floated in March 1985, its highest value has been 72.75USc, hit in June 1988.

ASB economist Kate Skinner put a busy currency week in perspective: "The US dollar extended its losses, making fresh lows against the euro and yen.

"Contributing factors included comments by [Federal Reserve] chairman [Alan] Greenspan expressing concern over the size of the US current account and fiscal deficits, and a suggestion that the Russian Central Bank may raise the level of reserves held in euros at the expense of US dollars."

These worries helped the kiwi hit its 16-year high.

Martin Poulsen, a director at First NZ Capital, said with the Australian dollar, the yen and the euro all strong, a rally in gold and commodity prices and a weak US dollar, the outlook was for a higher kiwi.

He said technical charts supported this. While charts were only one tool used to forecast currency moves, Poulsen is picking 74USc to 75USc some time in the next four months.

"The technicals are saying there's potential for further weakness in the US dollar and so further strength in the kiwi."

But Poulsen said some warning signs were emerging for the local currency - namely that interest rates appeared to have peaked and that the economy might slow as the strong currency took its toll on exporters.

Westpac senior currency strategist Johnathan Bayley was less bullish, saying that while the kiwi was likely to move higher, the odds were against it hitting 73USc before Christmas.

"It can be done but I give it a slightly less than even chance," Bayley said, his rationale being next week's expected Reserve Bank confirmation of an end to the tightening cycle combined with the likelihood the greenback will bounce back at some stage.