Currency booster

30-08-2010 | Alan Williams

Deutsche Bank has come up with some currency forecasts to boost farmer confidence.

A highlight of the forecasts completed in the last few days is a fall in the value of the New Zealand dollar to stg0.42 by the end of this year, and then, doubly encouraging, down towards stg0.37 through next year.

That would be a boon to sheep farmers seeing their high in-market UK lamb price returns stifled by the current high currency, at stg0.4530 late on Friday morning, admittedly off even higher levels a few months ago.

If the forecasts are accurate, that would mean a dollar 6.6% lower at the end of this year, and 17% lower by late 2011.

Deutsche Bank's senior New Zealand economist Darren Gibbs said the forecast came with the usual caveat about the volatility of currency markets, but all things being equal the move down should be gradual and steady.

The bank also forecasts significant falls for the dollar against the US dollar, euro, and Japanese yen over the next year.

Gibbs said this would make up for the dollar's resilience in recent weeks against the quite sharp falls in dairy commodity prices. Part of that resilience could be due to the way lamb prices have held up.

For the US dollar cross, Gibbs said the forecast is for a rate of US$0.66 by late December, then slipping to 0.64 by the middle of next year. Friday's rate was 0.7031.

Deutsche Bank sees the kiwi moving down to E0.50 from Friday's E0.5531, and for it to go as low as Y52 by the end of this year, from Y59.38 on Friday.

Gibbs said that another reason the kiwi has retained much of its strength so far this year was the view that the Reserve Bank would increase the Official Cash Rate by 25 basis points at each of its policy meetings. As the economy has slowed, this view has changed, and Deutsche Bank's view is that there may be no further rises this year.

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