Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Kiwi likely to fall as economic growth peaks: AMP Capital

Kiwi likely to fall as economic growth peaks, AMP Capital says

By Paul McBeth

July 17 (BusinessDesk) - AMP Capital New Zealand, which manages more than $18 billion of assets, is betting the kiwi dollar will fall as economic growth passes its peak and the nation's interest rate premium narrows as other central banks wind down their stimulus programmes.

The New Zealand dollar dropped more than 1 US cent yesterday as traders mulled a possible pause in the Reserve Bank's tightening cycle after milder-than-expected inflation figures coincided with a sharp drop in dairy prices.

AMP Capital, which is overweight cash in its portfolio and underweight the New Zealand dollar, says current levels near a post-float high aren't sustainable. The kiwi fell to a three-week low 86.86 US cents today, recently trading at 86.92 cents, and the trade-weighted index was recently at 80.96.

"We have got an increasingly unjustified strong currency, especially after the most recent decline in commodity prices," chief economist Bevan Graham told a briefing in Wellington. "The currency is so high, fundamentals have turned against it, it's just a mater of time before we see some downside, so happy to be patient with that position."

The strength of the currency has been a head-ache for the Reserve Bank which embarked on a cycle of raising interest rates this year in a bid to head off future inflation as the economy grows faster than its potential output, a measure of growth rates possible without creating excessive inflation. The kiwi dollar has been bolstered by New Zealand's relatively high interest rates in a world where major central banks are running near-zero policies.

AMP's Graham expects central bank governor Graeme Wheeler will hike the official cash rate a quarter-point at next week's review to 3.5 percent, and will raise the key rate again in December, depending on the strength of the currency.

"The Reserve Bank will want to bank a bit more before they pause. The reality is the economy is actually still growing strongly," Graham said. "The only question at the moment is exactly how long that pause is going to be."

Guy Elliffe, AMP Capital's head of equities, said the currency's continued strength has been a "big surprise" and that the market is expecting it to turn around.

"If you really believed the New Zealand dollar was going to be sustained at these current levels, a number of listed companies would be having a little bit of a valuation correction," Elliffe said. "Because stock prices aren't falling as the currency's rising the market is seeing some sort of reversion, and if that reversion doesn't occur, I think there's going to be a bit of a challenge for some of the stocks of the exporting sector."

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Scoop Business: Wheeler Downplays Scope For ‘Large’ Rates Fall

Reserve Bank governor Graeme Wheeler says some market commentators are predicting further declines in interest rates that would only make sense for an economy in recession, although some easing is likely to be needed to maintain New Zealand’s economic growth. More>>

ALSO:

Ruataniwha Dam: Consent Conditions Could Mean Reduced Intensity

Legal advice sought by the Hawke’s Bay Regional Council on the Ruataniwha Dam consent conditions has confirmed that farmers who sign up to take water from the dam could be required to reduce the intensity of their farming operation to meet the catchment’s strict nitrogen limit. More>>

Health And Safety: Bill Now Sees Rules Relaxed For Small Businesses

Health and safety law reform sparked by the Pike River coalmine disaster has been reported back from the industrial relations select committee with weakened requirements on small businesses to appoint health and safety representatives and committees. More>>

ALSO:

Bearing Fruit: Annual Fruit Exports Hit $2 Billion For First Time

The value of fruit exported rose 20 percent (up $330 million) for the June 2015 year when compared with the year ended June 2014. Both higher prices and a greater quantity of exports (up 9.0 percent) contributed to the overall rise. More>>

ALSO:

Interest Rates: NZ Dollar Jumps After RBNZ Trims OCR

The New Zealand dollar jumped more than half a US cent after Reserve Bank governor Graeme Wheeler cut the official cash rate by a quarter-point and said the currency needs to be lower, while dropping a reference to criteria that justified intervention. More>>

ALSO:

Drones: New 'World-Class' Framework For UAVs

The rules, which come into effect on 1 August, recognise the changing environment and create a world-class framework that accommodates ongoing development while still ensuring the safety of the public, property and other airspace users. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news