Kiwi hits US72c and rise on cards

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The New Zealand dollar has hit a four-month high against the greenback and could rise further, economists say.

The kiwi rose as high as US72.02c yesterday - the highest since January 21. It was at US71.84c by 5pm.

ASB Bank said the kiwi was expected to peak at about US74c.

Chief economist Nick Tuffley said economic growth, interest rates and commodity prices were driving the NZ dollar higher.

"Commodity prices are doing fairly reasonably for us so that does help our farmer returns, we've got interest rates which are low at the moment. The long-run outlook [for the economy] is reasonable," Tuffley said.

The US dollar had not appreciated as much as anticipated mainly because of low US bond yields and weak private sector investment.

The New Zealand economy was not as bogged down with some of the structural issues seen in the UK, US and Europe, although in the short term retail spending looked soggy, housing was affected by potential tax changes and the impact of the drought was spreading south, he said.

"Our short-term diagnosis is we'll probably gain slightly against some of the major currencies. But once they start lifting rates ... and their growth starts getting back on an even keel and you've got past the crisis phase, we'd expect that their currencies will start to strengthen."

The Reserve Bank of New Zealand will review interest rates on Thursday.

Westpac said it maintained an "up bias" against the US dollar for the week ahead and a more bullish stance for the next month, while ANZ said the kiwi was overvalued against a fair value of US66c.

ANZ chief economist Cameron Bagrie said one message from the bank's analysis was that although the dollar was overvalued there had been a structural shift in fair value "which people need to get their heads around".

This economic cycle was fundamentally different, Bagrie said.

"It requires an elongated period of de-leveraging, we know there's a lot of regulation coming to the fore but we also know that the global economy is recovering," he said.

"I think uncertainty is going to remain very high for a number of years yet and in that situation I think the currency's just going to whip around for a while yet, we're going to see up a couple of cents one week down a couple of cents the next week."

Manufactures and Exporters Association chief executive John Walley said the general view was the exchange rate was overvalued against the US.

"That's not fun because that strips away any sort of return that you're getting. And it's not fun for anybody who's basically in hi-tech or agriculture because that's where the trade tends to be in US dollars," he said.

"I think that the fact that the economy is quite sluggish means that the stimulus is going to have to continue for longer and provided other people continue to lift their own [interest] rates we should see pressure come off the exchange rate."