By ELLEN READ markets writer
The New Zealand dollar is testing two-year highs as it continues its spasmodic upward march.
On Wednesday night, it reached a 23-month high of US47.85c, but retreated soon after as profit takers emerged. Dealers are adamant the kiwi's rally remains firmly in place despite the profit-taking - especially among speculative holders - stalling short-term progress.
The New Zealand dollar has risen more than 10 per cent this year against the United States dollar.
A sustained break through US47.8c would clear the way for the kiwi to reach US50c.
Supporting this likelihood, several banks have upgraded their longer-term kiwi forecasts following the recent strong run.
"Our 12-month New Zealand dollar forecast has been significantly upgraded from US46c to US51c, primarily being the flipside of a weaker US dollar, but also benefiting from very favourable cash-rate differentials," Salomon Smith Barney economist Annette Beacher said.
There are five main drivers of New Zealand dollar movements: global growth, risk aversion, US dollar strength or weakness, technical levels and interest-rate differentials.
Global growth and risk aversion were the main drivers in the first three months of the year while in April and May a shift to US dollar weakness and the ensuing interest-rate differential were the motivators.
The Employers and Manufacturers Association (EMA) has serious concerns about the effect of the stronger kiwi on exporters.
EMA chief executive Alasdair Thompson said the arrival of currency speculators in New Zealand to take advantage of "unnecessarily high interest rates" is the only explanation why the New Zealand dollar is rising so rapidly.
The rapid rise in the dollar's value is occurring as commodity prices plummet and bears no relationship to the economy's real performance and mid-term outlook, he said. It was a "serious turn of events that will see exporters achieve substantially lower returns this year".
Thompson said overseas fund managers were betting on a sure thing as US fund managers were borrowing in the US at 1.8 per cent, sending it to New Zealand at US42/45c, lending it for 90 days at 5.5 per cent, and retrieving it at US46/48c.
Westpac currency strategist Stuart Ritson said nothing could stop the process.
NZ dollar hits two-year high with no signs of stopping
AdvertisementAdvertise with NZME.