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‘Overvalued’ Kiwi Dollar to Reach Record on Milk, Meat: Chart of the Day
New Zealand’s dollar may climb to a record on rising prices for dairy and meat exports, shrugging off policy makers’ concerns the currency’s strength will hurt the economy, Commonwealth Bank of Australia said.
The CHART OF THE DAY maps the so-called kiwi dollar’s exchange rate versus the U.S. currency and Australia & New Zealand Banking Group Ltd.’s trade-weighted index of prices for the nation’s main raw materials exports. It also shows the extra yield New Zealand’s three-year bonds offer over similar-maturity U.S. Treasuries has shrunk, a development that previously spurred declines in the currency.
New Zealand’s dollar climbed 6.2 percent over the past two months versus the greenback, the best performance among 31 major currencies, according to Bloomberg data. Central bank Governor Alan Bollard said yesterday the kiwi is “undesirably high.” A day earlier, the International Monetary Fund said the currency “may be as much as 20 percent overvalued.” The kiwi has risen nearly 20 percent since the IMF said in May last year it may be overvalued by between 10 percent and 25 percent.
“What’s really supporting the kiwi dollar is agricultural commodity prices at very high levels, which means export income is high and should flow into stronger economic activity in New Zealand,” said Richard Grace, chief currency strategist and head of international economics at Commonwealth Bank, Australia’s largest lender. “The New Zealand dollar or any currency can deviate for a long period of time from academic measures of valuation.”
Dairy and meat products made up 36 percent of the nation’s merchandise exports in the year to March, data from the statistics bureau show. New Zealand’s dollar traded at 78.97 U.S. cents as of 10:32 a.m. in Wellington from 78.90 cents in New York yesterday. The currency fell as much as 0.8 percent on May 10 after the IMF report.
Commonwealth Bank predicts the kiwi will rise to 85 cents by the third quarter, the strongest since it was allowed to trade freely in 1985, before dropping back to 79 cents by year- end. The median forecast of 33 economists polled by Bloomberg News is for the kiwi to fall to 76 cents by Sept. 30.
(For a copy of the chart, click here.)
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net;
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
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