New Zealand Dollar Remains Overvalued

New Zealand Dollar Remains Overvalued

The fall in the New Zealand dollar following today’s intervention by the Reserve Bank is welcome according to the Wellington Regional Chamber of Commerce.

“The New Zealand dollar has clearly been overvalued in terms of the economic fundamentals and remains so in our view. The Reserve Bank’s currency intervention is a bold move but we are pleased that the Bank recognises the plight of the productive sector and the bluntness of the OCR, said Chamber CEO Charles Finny.

“We are confident that the New Zealand dollar would have corrected itself without this intervention as overseas holders of New Zealand dollar instruments would have come to realise the extent of the New Zealand dollars overvaluation.

“We hope that those who have been investing in the New Zealand dollar to take advantage of our ridiculously high interest rates take note of today’s developments and reassess the risk they are taking on the New Zealand dollar.

“The Chamber’s view is that the New Zealand dollar continues to be overvalued. The New Zealand dollar is probably close to US15 cents higher than it should be and close to 30 yen higher than what you would expect as normal value. This means that we are expecting a correction in the New Zealand dollar of up to 30% against some currencies. Such a correction makes the differential between our interest rates and those in other OECD jurisdictions small in comparison. In contrast the risks are now enormous.

“We encourage careful scrutiny of New Zealand’s current account balance, and other economic fundamentals such as today’s disappointing terms of trade figures, which suggest strongly that the New Zealand dollar remains overvalued, and that a further downward movement in the New Zealand dollar is warranted,” Mr Finny concluded.

ENDS

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