By ELLEN READ
Economists are at sixes and sevens over their forecasts for the exchange rate. Latest projections reveal an extraordinary 16USc range in 12-month forecasts for the kiwi - which means some will have egg on their faces next year.
At the top end is Deutsche Bank's forecast of a 71USc exchange rate in June next year, and Westpac estimates a dollar will be worth 55USc.
Either way, there's movement in the year ahead - at 5pm yesterday the kiwi was at 65.03USc (the first close above 65USc since April 13).
The average forecast in a Reuters poll of 13 institutions was 63.2USc for June next year.
Deutsche Bank's kiwi-US view was driven by the US dollar story, senior economist Darren Gibbs said.
The bank thinks the greenback has further to fall because of the large US current account deficit (more than 5 per cent of GDP).
"The research our colleagues in New York have done suggests that if you don't get a reasonable adjustment in the US dollar then that could rise to as much as 8 per cent," Gibbs said.
"We're getting to the point where we are going to see further pressure and US dollar weakness. If that's the case, the view is that the NZ dollar will be a participant in that move [so will strengthen]."
Added to that, the strength of recent local data (current account better than expected, trade data showing strong exports, strong GDP for the start of the year) meant the kiwi was supported in its own right, Gibbs said.
"In a fundamental sense the kiwi dollar should be strong in this environment. But be that as it may, ours is a US dollar-driven view."
After a 71USc peak in June next year, the bank believes the kiwi will cool off to around 60USc over the following year to 18 months.
"In that sense, maybe it is a timing issue [the diverging forecasts]," Gibbs said, adding that there were tensions in the economy both here and overseas which opened up room for debate on direction.
Westpac's Nick Tuffley agrees, saying that when the kiwi is at a turning point then views are going to vary more than usual.
His bank's 55USc forecast is based on the view that the US current account deficit would benefit from a weaker greenback and that this is likely to happen - but more against the Asian currencies than the New Zealand dollar.
"What we see happening is more US dollar adjusting coming, but more via Asian economies which to date have resisted revaluing their exchange rates against the US dollar," Tuffley said.
The other part of Westpac's story is that while the New Zealand economy is strong at the moment and interest rates are rising, next year is seen quite differently.
"We're picking growth will start slowing quite noticeably next year and we also don't see inflation being too much of an issue and believe the RBNZ will actually be cutting rates next year," Tuffley said, conceding that last point is one where Westpac differs from many other forecasters.
"So slowing growth and falling interest rates aren't generally too attractive to investors and with the US looking pretty strong and interest rates on the way up there ameliorating some of the structural drag from the current account deficit, it will be more in favour," he said.
Egg on the face for exchange rate experts
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