Bollard says kiwi dollar still overvalued, climbs over 72 US cts

Thursday 10th December 2009

Reserve Bank Governor Alan Bollard said the New Zealand dollar is still overvalued, though “a little less so” than in previous months, and will continue to hamper the country’s export market. The currency climbed over 72 U.S. cents for the first time this week after central bank indicated it will hike interest rates earlier than expected next year.

“We still feel the New Zealand dollar is probably overvalued for the conditions, but a little less so than in June to September,” Bollard said at Parliament’s Finance and Expenditure Committee this afternoon.

The kiwi dollar surged 1.8% to 72.52 U.S. cents today after Bollard hinted he would raise interest rates earlier than expected as the economy bounces back faster than he anticipated.

The central bank kept the official cash rate on hold at a record low 2.5%, though Bollard said he might begin removing stimulus around the middle of next year.

A resurgent housing market has underpinned the economy’s bounceback as returning expatriates and an inflow of new migrants pushed up property prices amid a shortage of listings.

Property values have increased 1% in the 12 months through November, according to QV Valuations, and investors believe this may have “spooked” Bollard. On a trade-weighted basis, which is the Reserve Bank’s preferred method of measuring the currency, the kiwi has climbed 1.6% to 64.97.

Bollard has consistently expressed frustration at the resilience of the currency, which has surged more than 45% from its sub-50 U.S. cents low in March, hindering his desired export-led recovery.

A 90% surge in dairy prices on Fonterra Cooperative Group’s online trading platform in the past four months has also helped the recovery, and given the central bank room to be more upbeat in its outlook for economic growth in the coming year.

Businesswire.co.nz

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