By RICHARD BRADDELL
WELLINGTON - Negative economic sentiment due to the Greens' entry to parliament could be short-lived, according to bank economists.
In the past week the New Zealand dollar has been driven to 15-month lows, with a bout of selling in Friday's New York session taking the kiwi as low as
49.20USc, a fall of more than 80 points. Yesterday it surrendered most of a modest recovery to close locally at 49.35c.
But while the kiwi also hit seven-year lows on the trade weighted index, economists say the downturn could be short-lived given that typically light trade at year-end tends to exacerbate trends while growth forecast to accelerate next year and higher interest rates will be positive for the currency.
"The market is so thin and that should not be lost sight of ... The market is prone to be whippy and is susceptible to this kind of behaviour," said ANZ Bank's chief economist, Bernard Hodgetts.
The kiwi appears to have been caught in a crossfire of uncertainty. Potential buyers may be fence-sitting as they wait out Year 2000 problems and while the kiwi has also suffered from the rumours of an imminent downgrade of New Zealand by international credit rating agency Standard & Poor's because of the high current account deficit.
But with a host of economic factors pointing to upward pressure on the currency early in the new year, the chief economist of the Bank of New Zealand, Tony Alexander, said exporters could do well to consider hedging future export returns at current levels for the New Zealand dollar.
"I think it would be a brave person who either predicted more weakness or a one or two cent bounce back from here. These are volatile times," he said. However, the 3.1 per cent rise in commodity prices in the last two months was a good sign for an economy expected to grow strongly next year.
Skill shortages were emerging already, despite the early stage of the recovery, and expected higher interest rates would be good for the currency.
He said it was likely the Reserve Bank would lift interest rates in its March monetary policy statement, if it did not do so on January 19 when it reviews the official cash rate.
The 90-day bill yield responded to the kiwi's fall yesterday by soaring to 5.76 per cent from 5.60 per cent.
