A New Zealand dollar trading above 74USc is a matter of real concern, says Finance Minister Michael Cullen.
"Let's see whether that's temporary or not; whether it's a blip in advance of a Reserve Bank announcement," he said yesterday after speaking at a financial services conference in Australia.
"Clearly, at
that level it does start to become a real concern."
The dollar had touched a 22 1/2-year high above 74USc earlier, but fell on Cullen's comments to a low of 73.66USc from 73.87USc.
The currency has gained 3 per cent this year and has risen nearly 90 per cent since hitting a low of 38.95USc in October 2000.
The prospect of higher interest rates has helped the recent rally. The Reserve Bank will issue its latest statement today.
A Reuters poll has eight of 14 forecasters picking no change to the 6.5 per cent rate, highest in the developed world.
Cullen said a strong domestic dollar was bad for exporters and good for importers.
"But it tends to keep driving the current account deficit, which is getting uncomfortably high."
New Zealand's trade deficit in the year to January was $3.94 billion, just below December's record, and the current account deficit has ballooned to 5.8 per cent of gross domestic product in the third quarter from a low of 2.5 per cent at the end of 2001.
Cullen said there was little the Government could do about the level of the dollar, but the Reserve Bank had limited resources it could use where it saw a risk to stability.
"If the level of the dollar creates some sort of systemic problem within the economy or financial system, the bank now has the capacity to engage in limited action."
- REUTERS and staff reporter
