The currency has lost some momentum of late. However, accelerating growth, both domestically and globally, should ensure renewed upside over coming months. The data indicate that the economy is growing but that progress remains slows. Domestic demand continues to provide the main growth impetus, but export demand should improve as the global economy recovers from the recent financial crisis. Growth should become more broad based as the year progresses.
Inflation remains under control and no change in interest rate policy is anticipated for now.
Solid private consumption growth could trigger a tightening later in the year. In its May monetary policy statement the Central Bank expressed concern about the recent appreciation of the currency and some selling ensued. Despite the Central Bank's reservations, the currency is expected to appreciate further over coming months on the back of strengthening world growth and gradually higher commodity prices. Similar to the Australian dollar, rising interest rates in the US could put some downward pressure on the New Zealand dollar. However, given that domestic conditions do not warrant a hike in rates right now, any negative reaction by the currency should not unduly worry or prompt a similar action from the Central Bank.