On Tuesday night the
NZ dollar pushed up to a six-month high close to US74c but then fell away quickly.
This suggests that a common currency would yield similar outcomes in response to such shocks as has the independently floating
NZ dollar.
This is to be expected as higher interest rates in NZ attract foreign investment and drive up the price of the
NZ dollar on foreign exchange markets.
Preceding discussion has focused on mortgage and credit funding as a source of demand and supply changes for the
NZ dollar and therefore, in the most immediate sense, of changes in the foreign exchange rate.
Continued strength in most of New Zealand's international markets and a return to a downward trending
NZ dollar exchange rate should support this rebalancing.
Reinforcing this outlook is a weakening exports picture, based on softer world growth and the constraining effects of the strong
NZ dollar.
Not surprisingly the exchange rate between the US and
NZ dollar causes it the most concern.
What we are recommending is intervening when the moment is justified and opportune, with the outcome of, at best, trimming the extreme tops and bottoms of the
NZ dollar exchange rate cycle.
While our exporters are suffering under the very high
NZ dollar (and their pain impacts on all businesses) one assumes that can't go on forever.
Meanwhile, the overall CPI inflation rate has so far been offset by weak imported inflation due to the rising
NZ dollar exchange rate.
The advent of the Euro and recent volatility in the
NZ dollar have fuelled debate on whether a currency union might also be appropriate for New Zealand.
Businesses are acutely aware of the 257 million
NZ dollars (178.
