The New Zealand dollar and oil prices continued to rise yesterday, with warnings of worse to come.
The dollar went above US80c and oil vaulted to a record above $US101 ($NZ126) a barrel as Opec supply concerns and hedge fund buying countered worries about the US economy.
Fuel prices in New Zealand rose yesterday by 4c a litre for petrol despite the rise in the dollar partially offsetting the soaring oil price.
On the conversion, oil remains at about the same price in New Zealand dollars as it did last week, when it was around $US98 a barrel. The difference is that most oil is traded in US dollars and the greenback continues to fall against most currencies.
Analysts said a rush of buying by funds seeking a hedge against inflation helped push oil to new highs.
It has almost become a self-fulfilling prophecy with crude oil. Everyone is worried about inflation, so they dump their money into crude oil, which is causing US inflation to increase.
Oil reached $US100 for the first time in early January before prices tumbled amid concerns that wider global economic problems could dampen demand in the world's top consumer, the United States.
In New Zealand, some economists are now tipping the dollar to go to US85c this year.
ABN Amro Craigs broker Chris Timms said New Zealand's high official cash rate at 8.25% remains the catalyst for the strong dollar.
The Reserve Bank might need to cut interest rates sooner rather than later.
‘‘It feels like we are at the top of the wave. If the Reserve Bank doesn't decide to cut rates now, we will be back to the late 1990s, when everyone else was cutting rates and we were raising. The bank didn't cut soon enough. We went into a major slide and the bank ended up cutting rates aggressively,'' Mr Timms said in an interview.
The Reserve Bank releases its next monetary policy statement on March 6.
A Reuters poll earlier this month showed that eight of 16 economists expected the central bank to cut rates by the end of the year as consumers buckled under the pressure of steep borrowing costs. Six expected rates to stay on hold while two expected rates to be higher.
New Zealand First economic development spokesman Doug Woolerton said the high dollar and high interest rates meant exporters were being hampered at home by poorly designed monetary policy when they should be putting their energies into competing overseas markets.
A recent report on Export Year 2007 highlighted the Government's desire to strengthen export performance by creating a supportive policy environment.
‘‘This should be one of the Government's highest priorities as New Zealand's exports of goods and services have remained at around 30% of GDP since the 1980s.''
The high dollar and high interest rates ensured that export performance remained stunted by the Reserve Bank. Tax incentives for new exporters were a must, Mr Woolerton said.
Westpac Bank currency strategist Michael Gordon said the New Zealand economy was likely to hold up better than many economists expected this year.
The Reserve Bank could raise rates once more as the US Federal Reserve slashed rates further from the current 3%.
A tight labour market, record wages growth and robust Asia-Pacific economic growth, including in New Zealand's largest trading partner, Australia, was likely to keep the economy from stalling, he said.
