Yesterday, for the second time this week, the New Zealand dollar surged to a 26-year-high since floating (in 1985) to touch US82.5c, following the release of a positive National Bank business survey.
However, yesterday's survey findings of "signs of life" of an economic recovery are a reminder for New Zealanders that interest rates will have to rise to curb inflationary pressures once purse strings are loosened.
The bounding kiwi brings into sharp focus the problematic strength of the New Zealand dollar which will antagonise exporters and green-back denominated traders in the months ahead.
The National Bank's monthly business outlook survey and findings of the New Zealand Institute of Economic Research (NZIER), both released yesterday, said respectively the economy was "showing real signs of life" and that "preconditions for a domestic recovery are strengthening".
Analysts and economists were taken by surprise the day before with the release of merchandise trade data - import values measured against exports - $500 million ahead of all expectations, with $1.1 billion more exports than imports, primarily from the dairying sector.
National Bank chief economist Cameron Bagrie said "the economic patient was showing real signs of life" but he also cautioned that a year ago the "same lofty rate" of expansion was predicted, but did not eventuate.
The survey found general business confidence had lifted 47 points in two months, which was larger than the post-earthquake decline seen in March, and the rate of businesses expecting better times ahead for the economy rose 24 points to 38%.
"Firms own activity expectations have shown the same improving tone," Mr Bagrie said of the 10-point gain to 40% from a month ago.
He said the composite growth indicator continued to strengthen and was showing a 4.5% economic growth for the year ahead.
NZIER principal economist Shamubeel Eaqub said the economy was "in a holding pattern but the preconditions for a domestic recovery are strengthening".
Canterbury reconstruction would add activity next year and he expected the econ-omy to "recover strongly" from 0.3% growth this year to 3.7% during 2012.
While the Reserve Bank was expected to hold the interest-driving official cash rate at 2.5% for the remainder of the year, interest rates would have to rise to curb inflationary pressure as the recovery unfolded.
He also cautioned that while export prices and volumes had been "very strong" in recent years and provided a much needed off-set against a "deep domestic recession", a slowing in global economic growth would weigh heavily on exports and hinder the broader New Zealand recovery.
While domestic conditions were "steadily improving", global economic risks had risen. European sovereign debt issues had caused judders world-wide and there were concerns about more stimulus cash being being poured into the United States economy.
"In emerging markets like China, economic growth is moderating as authorities tighten monetary conditions to curb inflation," Mr Eaqub said.
