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US dollar parity a 'serious prospect' for kiwi: AMP

Tuesday 12th October 2010 3 Comments

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The kiwi dollar has a "serious prospect" of reaching parity with the US dollar as the global economy rebalances itself in favour of economies that produce raw materials, says AMP Capital Investors chief economist Shane Oliver. 

The New Zealand dollar has been the victim of investors shunning producing nations since the 1980s, and the emergence of developing economies was underpinning support for so-called commodity currencies such as the kiwi, Australian and Canadian dollars, he told a Wellington briefing today. 

"New Zealand dollar parity is not a forecast, but it is a serious prospect," Oliver said. The currency faces upside risks in the future, and it "might take a couple more years to get there".

The kiwi has climbed 6.7% since the end of August amid heightened fears the Federal Reserve will ramp up its asset purchase programme, and stoked investors' appetite for the relative stability and higher yields on offer from Australasia.

That's seen the Australian dollar hit post-float highs above 99 US cents, and investors are expecting the currency to reach parity with the greenback. The kiwi recently traded at 74.91 US cents.  

Oliver said New Zealand is still in better shape than many other economies, and the Reserve Bank will probably resume tightening monetary policy in the June quarter next year.  

Oliver said AMP Capital has wound down its holdings in local shares, and is now underweight after a late surge in New Zealand equities last month pushed them above fair value.  

The private investor, which manages $11 billion of local assets, made a quarterly return of 8.4% in the three months ended September 30 and expects the subsequent quarter to be slightly quieter, though head of equities Guy Elliffe said there's still some earnings potential in the sharemarket.  

Elliffe said there was very little activity in the market, though some of the companies AMP Capital invests in have been approached by private equity funds.  

The next big investment opportunity will be the proposed Fonterra Shareholders Fund, which will allow trading in shares that offer  exposure to the dairy exporter, though they won't have any voting rights.  

When asked if AMP Capital would consider investing in a vehicle exposed to Fonterra, Elliffe said "absolutely, for the right price".

He expects the vehicle to be open for investment in the third or fourth quarter next year.  

The fund manager made a quarterly return of 1.1% on cash, 2.4% in local bonds, 2.7% in international bonds, 15.3% in global property, 12.2% in hedged offshore equities, 7.5% in unhedged international shares, and 15.9% in Australian stock.

It made a 1.5% loss on its local direct property investments, which included the hit it took on the sale of the Lion Brewery in Auckland back to Lion Nathan.

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Comments from our readers

On 13 October 2010 at 9:11 am Chris Brown said:
It never fails to amaze me how these things are talked up. The dollar will not reach parity with the US within two years as the American economy will grow again in the next 12 months and when it does, it will be like a giant awakening. Consumption in the US will increase dramatically obviously including importation on a massive scale
On 13 October 2010 at 11:50 am rob of the north said:
Supertramp had a number on hit in the 80's with a song called " dreamer"..was that named after you, Chris Brown?
On 25 October 2010 at 8:11 am Benjamin Hawkins said:
Why Am I not surprised when the same banking mentality that brought the world and Allan Hubbard SCF to its knees
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