The Kiwi dollar could hit a low of US60c in the next six months if world trade tensions continued to escalate, says Milford Asset Management
The Kiwi traded today at US67c, down almost US7c from its mid-April level of US73.85c, due mostly to a resurgent US dollar but also to faltering local business confidence and other data pointing to an economic slowdown
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Milford portfolio manager Mark Riggall said the currency could fall further from here.
"We can certainly envisage it falling further, maybe towards the low 60 cents against the US dollar," he said in a commentary.
"First, we've got the US versus the rest of the world trade war, and this is potentially impacting on global growth and as an export nation this means the New Zealand dollar is under pressure," he said.
The second factor was that the current malaise in New Zealand's business confidence and whether that would translate into lower growth domestically.
"I think offshore investors probably pay less attention to the evolving business confidence situation here, but we're certainly seeing a lot of headlines about it locally," Riggall said.
"That's driving domestic investors such as ourselves to reduce New Zealand dollar holdings or increase our foreign currency holdings and, similarly, exporters who are potentially hedging their foreign currency revenues may reduce some of their hedges – so that may have a negative impact on the New Zealand dollar," he said.
On the flip side, the low Kiwi could benefit some, such as the tourism sector, but there were other considerations for investors to think about.
"The big risk is that we get a spike in inflation (through higher import costs) and that the increased growth that we should get because our exporters are earning more revenue doesn't eventuate," Riggall said.
"In that situation, you get stagflation - which is higher inflation and lower growth - and that's a very difficult phenomenon to get rid of," he said.
Riggall said "stagflation" was not Milford's base case "but it's a risk and there are certainly some ingredients in place for that to happen".
- Staff Reporter