The kiwi dollar defied gravity through 2005 staying at levels painful to exporters despite mounting evidence of a slowing economy.
The gap between what we spend and what we earned widened to a chasm - equivalent to 8.5 per cent of gross domestic product at the most recent reading -but the long-expected currency correction did not happen.
The Reserve Bank Governor and the Minister of Finance did their best to talk it down - a waste of breath.
The buying that has supported the dollar has not been to pay for exports; imports exceeded exports by more than $6 billion in the year ended October. Rather, the currency has been buoyed by a tidal wave of money, about $25 billion over the year, flowing from overseas investors, especially in Japan, into debt instruments called uridashis and eurokiwis.
These bonds pay interest rates that are attractive to the overseas investors but not too high to deter New Zealanders from taking out the fixed-rate mortgages they fund.
A key question for 2006 is how long this will last.
"The long-awaited New Zealand dollar decline is coming. The huge investor inflows over 2005 will see to that," says ASB Bank chief economist Anthony Byett.
Maturity dates for uridashis are concentrated around late 2006 and 2007. "They may choose to reinvest. They may not. Similar investors in previous cycles chose to take their money home. The strong currency inflow became a strong outflow. This is the pressure that is building."
ANZ National Bank chief economist John McDermott says the dollar's fall, when it comes, will be rapid.
He thinks the kiwi will overshoot its fair value, which he puts in the US60c-65c range.
NZ DOLLAR
* Floated in March 1985.
* Hit a low of US$0.3928 in November 2000.
* Hit a post-float high of US$0.7418 in March 2005.
