Dollar's upward trend keeps investors interested

The dollar will rise 2.2 per cent against the US currency in the next month as the country's interest rate advantage continues to draw overseas investors to the currency, TD Securities says.

"New Zealand's dollar has a phenomenal interest rate differential in its favour and this gap will remain wide," said Sydney-based Stephen Koukoulas, chief strategist at TD Securities, a unit of Toronto-Dominion Bank, the second-biggest Canadian bank by assets.

"In the next six months there is no chance of an interest rate cut."

The Reserve Bank of New Zealand has lifted interest rates seven times since January 2004 to a record 6.75 per cent, the highest of any country with the top credit rating from Moody's Investors Service.

On June 9, Reserve Bank Governor Alan Bollard said he could not rule out another rise because of persistent inflation.

The Federal Reserve's comparable interest-rate target for overnight loans between banks is 3 per cent. Australia's similar key lending rate is 5.5 per cent.

The dollar has gained 14 per cent in the past year to just over 71USc yesterday, having risen to a record high of 74.66USc on March 17. Koukoulas predicts it will appreciate to 73USc in the next one to three months.

He believes the strength of the economy will also lure investors to its assets and spur buying of the currency. "The economy still has some momentum. New Zealand is a good place for investors."

- BLOOMBERG