The New Zealand dollar will remain strong against the Australian currency until the Reserve Bank of New Zealand faces the prospect of interest rate cuts and and the Australian central bank considers rate rises.
BNZ currency strategist Raiko Shareef said yesterday that combination of factors was ''patently unlikely'' to change much before 2017.
The BNZ tended to re-estimate its short-term valuation models of the currency on an annual basis to take into account the information content of the past year.
Rejigging the transtasman model in that manner meant lifting the ''fair value'' of the New Zealand currency to A95.8c, he said.
''This is a wholly unsurprising result. This class of model essentially takes the factors we throw at it - interest rates, commodity prices, business confidence - and forces it to match the actual path of the NZ dollar/Australian dollar.''
One interesting outcome of the re-estimation was the influence of commodity prices being much stronger and interest rates moderately weaker, Mr Shareef said.
The change did not have major implications for the forecasts, which remained at A96c for June this year, A95c for December this year and A88c for December 2016.
The re-estimation helped to reconcile current New Zealand dollar strength with what he considered to be the key drivers of the cross.
Looking ahead, Mr Shareef expected New Zealand commodity price advantage over Australia to improve but the interest rate advantage to deteriorate.
