3 Sep 2021

Strong New Zealand dollar expected to continue upward trend

1:07 pm on 3 September 2021

The New Zealand dollar is at a two-month high against the US dollar, as well as the currencies of our biggest trading partners.

Close-up of New Zealand fifty dollar banknotes

Photo: 123RF

Rising Covid-19 cases in the United States over recent weeks threatened its economic recovery, keeping the US Federal Reserve from pulling back on its massive stimulus, with interest rate increases expected to be some way off.

Westpac currency strategist Imre Speizer said the story was much the same across the Tasman, with the NZD trading at a six-month high against the Australian dollar.

"There are some question marks about what the RBA [Reserve Bank of Australia] is going to do with its own quantitative easing program when it meets next week," he said.

"So that contrast between the more dovish RBA versus the very hawkish RBNZ [Reserve Bank of New Zealand] - that is what's driving the interest rate spread between the two countries, which in turn is feeding into the cross rate."

Speizer said the RBNZ was likely to begin hiking the official cash rate from October, from its current level of 0.25 percent.

"So that is probably going to be the differentiator I think over the next six maybe even 12 months, that the Kiwi should outperform most of these currencies globally."

Speizer expected the Kiwi could break above 73 US cents in the next week or two - rising to 74 US cents by the end of the year.

At 10am, the kiwi was at 71.1 US cents, 96.1 Australian, and 75.0 US cents against the trade weight index.

Get the RNZ app

for ad-free news and current affairs