20 Jul 2011

NZ dollar soars as progress made on US debt

3:03 pm on 20 July 2011

The New Zealand dollar has risen against the greenback as US politicians draw closer to sorting out the debt crisis.

The US must raise its $US14.3 trillion debt ceiling if it is to borrow beyond 2 August and be able to pay its bills.

The BBC reports US President Barack Obama has cited some progress in debt talks, saying a proposal had been put forward on Tuesday by senators to cut the budget deficit and raise the limit.

The New Zealand dollar rose to about US85.5 cents overnight on Tuesday and remained close to that rate during Wednesday morning.

Westpac market strategist Imre Speizer says the primary influence on the dollar is global risk sentiment, which pushed up all the commodity currencies.

However, New Zealand's currency rose more strongly than others because of the marginal influence of domestic fundamentals, with strong economic data since the February earthquake.

Mr Speizer expects the New Zealand dollar to reach US86 cents.

High dollar concerns investors

An Australasian investment strategist says the investment community is worried about the US debt issue, but the high Australian and New Zealand dollars are proving more vexing.

Russell Investments' chief investment strategist Andrew Pease says the US debt issue is a clear danger but it is likely an agreement to raise the debt ceiling will be reached in time.

Mr Pease says the high New Zealand and Australian dollars are proving more of a worry, especially for export businesses.

He says the New Zealand dollar is not as over-valued as the currency in Australia, where a two-speed economy is becoming apparent, in which mining is doing well but the non-mining economy is showing strain.

Mr Pease says a diversified portfolio is a good strategy.