The chief foreign exchange economist for heavyweight US investment bank Goldman Sachs has expressed his liking for the New Zealand dollar's prospects.
In an assessment of the economic position of the New Zealand, Australian and Canadian dollars and their vulnerability to external shocks, Jim O'Neill, argues in his weekly FX Analyst that most factors favour the kiwi, followed by the Australian dollar and the Canadian dollar.
Prospects for an upturn in the global cycle had increased focus on the periphery of the "dollar bloc" - Canada, Australia and New Zealand, he said.
According to a Goldman Sachs economic model, the Canadian dollar is modestly undervalued against the US dollar, at 3 per cent, compared with 35 per cent for the Australian dollar and 16 per cent for the kiwi.
The model suggests the kiwi should be at 49USc against its present 42.5c and the Australian dollar at 69USc against 51.65c.
The kiwi has gained 3 per cent this year against the US dollar while the Australian dollar is up 2 per cent and the Canadian dollar was down 1 per cent.
As small open economies with close ties to the major blocs, the three currencies are often viewed as leveraged "bets" on the global economy, said Mr O'Neill.
"Subjectively, we prefer New Zealand and Australia to Canada, given the fragility of the latter's external balances and close ties to still-vulnerable US demand."
"New Zealand is best positioned from a cyclical standpoint, with the least degree of slack in the economy."
OECD figures predict that the New Zealand economy will perform 0.6 per cent below potential in the present global downturn, which would be better than Australia (0.9 per cent) and Canada (1.3 per cent).
Mr O'Neill said that bond and equity assets in Australia and New Zealand were most attractively priced for capital inflows.
He said downward inflation pressure was evident in all three economies.
- NZPA
<i>Currency:</i> US analyst backs kiwi
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