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BNZ Weekly and Offshore Overviews Feb 28 2008

Welcome to the February 28 2008 editions of the BNZ Weekly and Offshore Overviews.

The NZD has hit a new post-float high above 82.1 cents this week on its way possibly higher yet. The strength in the NZD is unsurprising and in line with the warning we have been delivering since 69 cents last September. Namely that with support from high interest rates and high commodity prices once investors regained a bit of confidence the NZD would rise again. It has and more appreciation is in prospect before eventually some decline on the back of slow NZ growth. Exporters shouldn't count on any substantial sustained fall in the near future however as we're going to ride the coat-tails of a soaring Aussie dollar.

In the US this week more bad housing numbers have appeared with one reliable measure showing prices 9.1% down from a year ago. But the sharemarket has gained on the view that if recession develops it will be short-lived given the stimulus measures.

In Europe talk of weak growth is backing off with the second month in a row of improving business sentiment in Germany and a Euro-area services measure proving surprisingly strong.

In China the central bank has pushed the Yuan down slightly against the greenback to scare away speculators it seems. But with inflation set to rise above 8% and export growth holding strong, faster appreciation in the Yuan beckons this year.

In Australia its all about booming commodity prices and a currency which has now hit a 24 year high against the greenback with monetary policy likely to be tightened again very soon.

In Japan data releases have been near absent but the Cabinet Office has revised down its growth forecast for the first time in 15 months while the Yen has weakened as investors have come out of their bolt holes looking for riskier and higher yielding investments outside of Japan.

Next week in NZ the RB will review their cash rate. We expect no change, no signal of a change, but perhaps slightly less hawkishness than before given the weak housing and retail numbers plus yesterday's weaker than expected Business Outlook survey.

ENDS

(See attached file: WOFeb28.pdf)(See attached file: OOFeb28.pdf)

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