NZ dollar could stay above Aussie dollar parity: UBS   17 Apr 2015

NZ dollar could stay above Aussie dollar parity for 'at least a year', UBS says

By Tina Morrison

April 17 (BusinessDesk) - The New Zealand dollar could achieve parity with the Australian dollar within weeks and stay above A$1 for at least a year, according to revised forecasts by economists for the New Zealand arm of the global financial services company, UBS.

The kiwi last week touched 99.78 Australian cents, its highest level since being allowed to trade freely in 1984, as traders anticipated a cut at the Reserve Bank of Australia's April 7 meeting to stimulate the Australian economy after a slump in iron ore and coal prices. However, the kiwi failed to breach the historic level after the RBA unexpectedly kept the rate on hold. Still, with another RBA meeting looming on May 5, the chances for parity are increasing, UBS economists Robin Clements, Scott Haslem and George Tharenou said in a note. The kiwi was recently at 98.41 Australian cents.

"We are now forecasting the NZ dollar to achieve parity with the Australian dollar, and sooner rather than later (possibly after an anticipated RBA rate cut in May)," UBS said. "Last week's hard-commodity price forecast downgrades, and resultant lower Australian dollar forecasts, combined with New Zealand's relative growth story, suggests New Zealand dollar parity with the Australian dollar is likely, rather than just a risk. Moreover, our forecasts indicate the New Zealand dollar could stay above parity for some time."

UBS forecasts show the kiwi at parity by the June quarter of this year and staying above A$1 though its forecast period ending June 2016.

"With a pick-up in global headwinds and renewed upward pressure on the Australian dollar, the RBA is expected to take the path of least regret and trim the cash rate to further 'insure' the economic recovery, and protect the Australian dollar's recent fall," UBS said. "After February's cut, we look for another cut in May."

UBS reaffirmed its outlook for "ongoing solid growth" in New Zealand, which it expects to average around 3 percent this year and next.

(BusinessDesk)

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