New Zealand dollar surges to record level against US currency

The New Zealand dollar surged through the US$0.7800 level early Tuesday to set another 22-year record on strong local and Asian demand as the U.S. dollar continued to weaken, currency dealers said.

The local unit peaked at US$0.7835 in offshore trading overnight, its highest level since the currency was floated in March 1985. By 11:00 a.m. local time Tuesday (2300 GMT Monday) it was at US$0.7825.

RBC Capital Markets immediately revised upward its NZD/USD forecast to reflect an increased risk of further central bank interest rate tightening this year. The Reserve Bank has already increased its key rate three times since February.

"Strap yourselves in for US$0.8200," said currency strategist Sue Trinh, noting the company had lifted its year-end forecast for the New Zealand dollar to US$0.7900 from US$0.7600.

The Reserve Bank, concerned about the soaring dollar, has intervened in the currency market up to three times in the last month, selling New Zealand dollars in a bid to moderate its rise.

Bank Governor Alan Bollard has warned that current levels of the exchange rate are "exceptional and unjustified" in terms of its economic fundamentals.

The appreciation of the "Kiwi," as the currency is known, has hurt New Zealand's exporters.

The latest spike in the unit came as the U.S. dollar declined across the board, tumbling to a 26-year low against Britain's pound sterling.

ANZ Bank predicted in a new report that "it looks to be a matter of when, not if, NZD/USD will reach US$0.8000, with (its) current rate of appreciation suggesting it will test that level by (the) end of (the current) week."

Further U.S. dollar weakness was likely to combine with more local and offshore demand for the Kiwi, making a New Zealand dollar level of US$0.8000 "a matter of when not if," the commercial trading bank said.

The New Zealand dollar peaked early Tuesday against the Yen at a multiyear high of 95.79, and against the euro at €0.5748, the highest level since January 2006.

Against the Australian dollar, the Kiwi spiked to A$0.9117 late Monday, the highest level since February 2006.

source:iht.com