By LIAM DANN, primary industries editor
Has the New Zealand dollar peaked? There are certainly plenty of fingers crossed in the primary sector hoping it has.
News from foreign exchange markets in the past few weeks has been promising.
The kiwi dollar has yet to bounce back from the hammering it took after the news that the Reserve Bank would be granted new powers to intervene if necessary.
There are also signs that the domestic economy is cooling, which may temper the exuberance of foreign investors for our currency.
And finally the United States economy has had some good news, with the best employment figures it has had in years.
So can we breathe a sigh of relief, kick back and wait for the fat export receipts to start rolling in?
Not quite - some powerful forces are still at work on the humble kiwi.
For example, increased uncertainty in Iraq means the US dollar still has plenty of volatility.
Westpac senior currency strategist Johnathan Bayley takes talk of the dollar's peak with a grain of salt.
"People have been talking about it peaking since the high was 68USc," he says.
While there is good news out of the US he believes there is still a long way to go before we'll see the greenback make real gains.
Last week's US employment data means the Federal Reserve - America's equivalent of the Reserve Bank - is more likely to raise interest rates from the record low of 1 per cent, where they now sit.
That will make the US dollar more competitive against currencies such as the kiwi, which has become so overvalued partially because foreign investors are attracted to our higher interest rates.
Last Wednesday morning, for example, New Zealand farmers woke up less internationally competitive than when they went to bed simply because a bunch of Swedish bond traders decided they liked the look of New Zealand interest rates and invested some kronors.
In a world where US$1.5 trillion ($2.3 trillion) worth of currency is traded every day New Zealand is a very small player.
So US rate rises will be good news, says Bayley, but they will not be an instant fix. There are other issues like the US external trade deficit.
Bayley believes the US dollar needs to fall another 10 per cent for the deficit to return to sustainable levels.
If that happens we can expect another spike in the kiwi dollar.
"The question is: at what point do the kiwi's fundamental drivers become so important that the kiwi stops participating in the US dollar trend?" Bayley says. "Well not yet. But we would say it will have happened by the fourth quarter of this year."
So has the kiwi peaked? "It's hard to say because we can definitely see it making its way back up to 71USc. But any new high over that 71USc is probably going to be marginal."
Bayley says a more sensible question might be: has the kiwi peaked on a trade-weighted basis?
His answer -"quite possibly so" - is about as close to "yes" as a currency trader is likely to get.
BNZ currency strategist Sue Trinh agrees that we could still see the kiwi spike over 71USc.
"There is no doubt that on the back of the US job numbers the market is a little more optimistic about the US recovery," she says. "But that one number does not make a recovery."
On a more positive note she believes the kiwi's long upward trend has peaked. "We don't expect the kiwi to hold on to gains through any potential new highs."
Just as it did when it hit the bottom of its slump in 2001, the kiwi could spend the year going nowhere, she says. There would still be peaks and troughs, but through a range that we've already seen in the past couple of months.
"The kiwi's uptrend over the past two years is probably over if you think about it in terms of momentum, speed and strength," Trinh says.
Those words will sound very comforting to exporters and farmers.
Sting in the tail of high NZ dollar
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