KEY POINTS:
Prospects of relief for exporters in the form of a lower New Zealand dollar are receding as the United States dollar looks set to continue its slide.
Giant Swiss investment bank UBS said yesterday it expected the greenback to continue the depreciation which has pushed the currencies of
many other countries, including New Zealand, higher.
"Shifts in capital flows in the international financial system, the persistent US external funding need, and interest rate differentials will generate a further period of weakness for the US dollar over the course of this year," said UBS economist Paul Donovan in Britain.
The bank's New Zealand economist, Robin Clements, said those expectations had already been incorporated into UBS's kiwi dollar forecasts.
Clements was to review those forecasts this week, "and the risk is that they're going to be higher rather than lower".
Clements said the kiwi was overvalued and the factors that had been holding it, such as the carry trade, should begin to diminish over time.
"The Reserve Bank will get to the end of the tightening cycle, the economy will roll over, all of those things will eventually happen."
But expectations of further US dollar weakness would "contribute to a higher track and more sustained strength in the kiwi than would otherwise be the case".
According to his present forecasts, Clements expected the kiwi to be trading at about US67c by the end of the year. "But that's likely to be higher by the end of the week."
Bank of New Zealand currency strategist Danica Hampton said the past week or two had seen a bit of a recovery in the US dollar, but that was likely a bout of profit taking and the market pausing for a breather.
"We wouldn't really be surprised to see the US dollar resume its weakening trend."
She said this week's US inflation, housing sales and building permits data were expected to be soft.
"With that in mind we are looking for a generally heavier tone in the US dollar which would support the kiwi."
However, the BNZ wasn't expecting "a massive downward leg" for the greenback.
Its forecasts had the kiwi dollar at US73c by the end of June US72c by the end of September and US70c by the end of the year.
Forecasts for the kiwi by the end of this year:
* UBS: US67c
* BNZ: US70c
* ANZ: US64c
