Reserve Bank could pause on interest rate rises, and exporters up their criticism as US economy lumbers along.

It's all eyes on the dollar this week after the effervescent kiwi fizzed to within half a cent of a record high by 5pm Friday.

Good times for holidaymakers and blessed relief at the pump for motorists, but it is a persistent concern for exporters - particularly as we see commodity prices coming off record highs.

When dairy prices fall the dollar is supposed to go with them. But that equation is being thrown out as our interest rates rise and the United States economy fails to fire.

The US dollar has fallen in value on poor GDP data. It fell further against the euro overnight on Friday. If the negative US sentiment continues we could see the dollar top its post-float record of US88.4c. It hit a record high against the trade weighted index last week - an aggregate currency index based on a basket of our major trading partners.


America's economy continues to lumber back into life more slowly than anyone would hope. In fact the economy shrank in the first quarter of 2014, with GDP falling by an annualised rate of 2.9 per cent, more than anyone had expected.

A contraction was anticipated as the bitter winter put the bite on spending, and economists expect it will be back on the growth path from this quarter.

But that worse-than-expected performance is problematic for our Reserve Bank. While the bank doesn't set policy based on speculation about what might happen, it would have been helpful for its current policy course if America's recovery had been more robust.

A stronger US economy, a tapering of stimulus and a rising greenback would have put downward pressure on the kiwi. That would have taken the edge off the upward pressure that rate rises put on our currency. Sadly, it hasn't played out that way.

The high dollar threatens to become a serious headwind for our economic recovery. It may be enough of a headwind that the bank opts to pause on the current round of rate hikes, at least for July. That would buy it some time to wait and see which way the US recovery breaks.

US markets continue to be extremely bullish. At some point the real economy will need to catch up with the forward looking expectations of investors and underpin corporate earnings. Either that or the market will have to fall.

US pundits are already divided, with many now starting to ask questions about the sustainability of the current Wall Street bull run.

A correction on Wall Street would not be pretty and would have the potential to end the IPO party on the local stock market. As time goes on, the expectations and pressure are mounting on the US.

We've been living with a historically high dollar relative to the US for about a decade now, apart from a few months of panicked falls in the aftermath of the global financial crisis.

The old cycles of the post-float dollar seem to be long gone. It is encouraging to see how well many of our big companies are now coping with the exchange rate. Increasingly, they have to view anything shy of parity with the US as a bonus.

We may see the flaws and risks in the New Zealand economy and we may feel our dollar is overvalued. But the world's currency traders still see us as a safe bet when US confidence wanes.

But this week we could be headed for uncharted territory. Expect to see battling exporters turn up the intensity of their Reserve Bank criticism.

Who knows? It might even become an election issue, if we ever get back to policy debate. But don't expect John Key or Bill English to offer any quick fixes. While the high dollar keeps a lid on the price of fuel and consumer goods, it is probably on their side.