NZ dollar hits record high, Reserve Bank chief "surprised"

13:58, June 10, 2011      

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The New Zealand dollar peaked at 82.97 cents against the U.S. dollar early Friday, its highest level since it floated in March 1985.

The governor of the Reserve Bank of New Zealand Alan Bollard expressed surprise that the currency has hit a record high the day after the central bank made no change to interest rates.

"It does look like markets have interpreted our forecasts for the New Zealand economy a little bit stronger than I expected," Bollard told the Radio New Zealand Friday. "I'm a bit surprised about that, quite frankly."

Bollard Thursday forecast New Zealand's economic growth would leap to 4.8 percent next year from 1.5 percent estimated for this year.

The bank forecast in March had implied the Official Cash Rate ( OCR) would begin rising from early 2012, while the forecast on Thursday implied the rate would start going up later this year.

"If that forecast results in an increase in the dollar then that means we've got less need to increase interest rates late this year or early next year, therefore there's a softer monetary policy track. So somehow it doesn't quite add up."

Bollard said the markets had over-interpreted the desirable strength of the dollar.

The higher dollar reflected high commodity prices, and farmers and exporters to Australia had done well, he said, but others, including exporters of non-primary produce in U.S. dollars, had not, and the tourism sector was "hurting a lot."

A drop in the value of the dollar would mostly depend on overseas factors, in particular a recovery of U.S. economy, he said.

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