Exporters should not get carried away thinking the New Zealand dollar's shedding of US1.07c yesterday was permanent.
In a volatile start to the week, investors reacted to some unfavourable news out of the United States and weaker than expected global economic data by dumping the New Zealand dollar, which caused yesterday's wobbles.
At 5pm yesterday the New Zealand dollar was trading at US72.71cBNZ currency strategist Mike Jones said the volatility was temporary and he expected the dollar to continue to strengthen in value on the back of an economy that was performing better than many others.
"We don't see this as the start of a movement back to US50c," he said.
Mr Jones expected the dollar to remain volatile all week, easing to about US69c or US70c before continuing to firm.
"Overall the Kiwi is expected to remain on an upward trend."
Investors' appetite for risk was tempered by the announcement last week that the Reserve Bank of New Zealand had no immediate plans to raise interest rates, and continued yesterday with United States-based lender CIT Group filing for bankruptcy.
While potentially costing US taxpayers $US2.3 billion through the Trouble Asset Relief programme, the bankruptcy has renewed fears about the strength of the US financial sector.
Mr Jones said confidence was not helped by some poor international economic data which hinted that the economic recovery was not as strong as expected, which saw investments flood back to what were seen as safer havens - the US dollar and the yen.
He said that would be short-lived, as New Zealand was perceived as an attractive investment, with an economy recovering stronger than others.
"The United States and European economies justify the New Zealand dollar being at its current levels," he said.
Further upward pressure could come from the Reserve Bank of Australia, this week expected to raise interest rates 25 basis points to 3.5%, helped by a bullish economic forecast yesterday by Treasurer Wayne Swan.
He said the Government expected unemployment to be lower and economic growth stronger in the current financial year, but a lag between economic activity and tax collection meant any improvement in the Government's finances would take some time.
The forecast deficit for the current year was unchanged at $NZ72 billion.
The economy was expected to grow this year at 1.5%, up from 1% last year, but jump sharply to 2.75% in 2010-11.
Inflation was expected to be slightly higher at 2.25% this year and unemployment to peak in the second quarter of this year at 6.75%.
It was previously forecast to peak at 8.5% in the June quarter of 2011.
Mr Jones said the New Zealand and Australian currencies tended to follow each other, and investors effectively viewed Australia and New Zealand economies as one, as they were both built on similar foundations.
Adding to currency volatility was interest rate news this week from the US Federal Reserve and the Bank of England.
