25 Mar 2009

Dollar's rise may prompt more interest rate cuts

12:06 pm on 25 March 2009

A surge in the New Zealand dollar to a 10-week high is likely to force the Reserve Bank to make deeper interest rate cuts if it remains in such positive territory.

The dollar shot up after the United States government unveiled a plan to unlock toxic assets from banks' balance sheets.

It was trading at about 57 US cents on Tuesday, its highest since mid-January. By Wednesday morning, it was back slightly.

In its latest statement, the Reserve Bank said it expected the currency to head a lot lower, and was relying on easier financial conditions overall to spur an economic recovery from the second half of the year.

Westpac economist Michael Gordon says the dollar's rise has been rapid and may be based on false optimism.