New Zealand Dollar to U.S. Dollar Exchange RateMay 27th - 1 NZD = U.S. 0.6658 (-25% = .49)
May 26, 2010
N.Z. Dollar Is Overvalued by as Much as 25%, IMF Says
May 27 (Bloomberg) -- The New Zealand dollar may be overvalued by between 10 percent and 25 percent and needs to fall to help narrow the country’s current account deficit, the International Monetary Fund said.
“The exchange rate is overvalued from a medium-term perspective, while recognizing the uncertainty surrounding the estimates,” IMF directors concluded, according to a staff report from the Washington-based lender yesterday. The fund reached its findings after discussions with the country that ended May 12.
New Zealand is weathering the worldwide financial crisis better than most advanced countries in part because of strong demand from Asia, the absence of a banking crisis and a flexible exchange rate, the IMF said. Its economy should grow by about 3 percent this year and next, according to the fund. New Zealand’s exchange rate has climbed more than 20 percent since early 2009, the IMF said.
New Zealand’s dollar bought 66.30 U.S. cents as at 2:10 p.m. in Wellington from 66.29 cents in New York yesterday.
The country’s medium-term budget outlook has worsened and challenges include reducing “vulnerabilities associated with a deteriorated fiscal position and high private external debt,” the IMF said. The budget picture has worsened because income-tax cuts and spending initiatives were permanent and revenue projections have been reduced, it said.
‘Significantly Lower’
“The exchange rate would need to be significantly lower for an extended period of time for New Zealand’s external liabilities position to be materially reduced,” the IMF said.
Reserve Bank of New Zealand Governor Alan Bollard said May 19 that a gradual weakening in the currency is desirable to boost exports and curb demand for imports.
“A gradual depreciation of the New Zealand dollar remains desirable for a sustainable rebalancing of the New Zealand economy,” Bollard said. On a trade-weighted basis the currency has remained high, he said.
Exports rose 9 percent in April from a year earlier while imports were unchanged, according to a government report today. As a result, the trade accounts showed a NZ$161 million ($107 million) surplus in the year ended April 30, the first surplus in almost eight years.
While New Zealand was able to cushion the effects of the crisis with “sizeable stimulus,” officials should withdraw such measures “once the recovery is well established,” the IMF said. Authorities also need to stay “vigilant” to risks arising at banks, even though the country’s institutions have “remained resilient,” according to the fund.
Accommodative monetary policy by the Reserve Bank of New Zealand is appropriate, and its inflation-targeting policy “performed well during the global crisis,” IMF directors said.
New Zealand’s central bank, which has cut its benchmark rate to a record-low 2.5 percent, should “soon” start to withdraw stimulus and continue at a moderate pace so as not to jeopardize a “still fragile” recovery, the Paris-based Organization for Economic Cooperation and Development said in a report yesterday.
http://www.businessweek.com/news/2010-05-26/n-z-dollar-is-overvalued-by-as-much-as-25-imf-says-update1-.html
related article from March 31, 2010 ~
New Zealand dollar overvalued 10-25 pct - IMF
