By ELLEN READ
The soaring New Zealand dollar is being tipped to hit a record high against the US dollar by year's end.
After firing through 66USc on Monday, the kiwi made inroads above 67USc yesterday as the greenback continued to tumble.
Having gained more than a cent in 24 hours, and peaking at 67.25USc overnight, the kiwi settled at 66.93USc at 5pm yesterday.
UBS Warburg chief economist Robin Clements forecasts the kiwi to end this year at 72USc, its highest level since the dollar was floated in 1985.
The bank yesterday increased its mid-year forecast to 70USc from 65USc, saying the risk of further substantial US dollar weakness has increased.
"This is a US story. It has little to do with the New Zealand economy," Clements said.
"All we can do is say is if it goes there [72USc], it's going to mean a lot of pressure on exporters. Relief is not in sight."
Since the kiwi floated at 43.7USc its peak has been 71.7USc, in November 1996. Its lowest level was 38.98USc in October 2000. Since the float its average rate has been 58-59USc.
Yesterday the kiwi was stable against other currencies. The euro and Australian dollars also strengthened against the US currency.
The greenback's downward spiral continued after comments from Federal Reserve Governor Ben Bernanke suggesting the US was in no hurry to raise interest rates from the 45-year low of 1 per cent.
But the greenback's loss is the kiwi's gain - it rose 25 per cent against the US currency last year.
ASB economist Kate Skinner said the kiwi would continue to outperform other currencies due to favourable local interest rates and an improving global outlook (which makes investors more willing to come Downunder).
Clements said the soaring kiwi lessened the chances of the Reserve Bank raising interest rates from the current 5 per cent on January 29, as some economists were picking.
The UBS forecast was for no rate hikes until June but even that could be in doubt if the kiwi remained strong, he said.
A Reuters poll taken last month showed six of 13 economists surveyed expected a 25-basis-point hike this month.
The market is also pricing in a rise, with 90-day bank bill rates sitting around 5.4 per cent.
While UBS's formal currency forecasts went only as far as the 72USc pick for December, Clements said that would be the currency peak for this cycle anyway.
"What we might find is that by the end of the year, the domestic economy has lost some steam, the export sector is still struggling and what's left is a pretty weak economy," he said.
Alongside a likely end to US dollar weakness, that could bring about a sharp kiwi correction.
"But that's going to be a 2005 story," Clements said.
Record high tipped as kiwi continues to climb
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