14 May 2013

Turbulence but eventual rise for dollar predicted

7:55 am on 14 May 2013

The New Zealand dollar is expected to face months of turbulence, partly due to a report that the US central bank is planning to wind down its fiscal stimulus measures.

The dollar has slipped since Friday, and is expected to fall further after a report in the Wall Street Journal said that the Federal Reserve will start pulling back on its programme of quantitative easing.

The Kiwi fell a cent overnight on Friday to a two month low of US82.6 cents.

That's more than four cents below this year's high of US86.75cents reached in April.

On Tuesday morning it was trading at about US82.4 cents and Westpac market strategist Imre Speizer says it is under further pressure.

"We think that the speculators are currently very, very, long on the Kiwi dollar still and something like this could well spook them out.

"And secondly we think the US economy is going to look quite rosy for the rest of the year, although it'll slow a bit over the next few months possibly as the drought effects kick in."

He says these factors will all put a dampener on the Kiwi until the middle of the year but by the end of the year expects to to see it back up again and possibly to a new high.

Mr Speizer says the US Federal Reserve is not expected to announce plans to wind down its quantitative easing programme until September at the earliest, when it has further evidence that the US economy has improved.