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NZ dollar will remain well supported as growth accelerates, AMP Capital says

Tuesday 15th October 2013

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The New Zealand dollar, which has gained 2.6 percent the past month, is likely to continue to find favour on the back of an improving economy, according to investment fund manager AMP Capital New Zealand.

"The New Zealand dollar we think is likely to remain reasonably well supported," AMP Capital NZ chief economist Bevan Graham told a media briefing in Wellington today. "The growing list of positives is growing still. We think we are going to see pretty robust growth over the next couple of quarters and actually into next year."

The country's worst drought in 70 years crimped economic expansion in the first half of the year, although the economy continued to grow at a 2.7 percent annual pace. AMP Capital expects gross domestic product growth of more than 1 percent for each of the coming quarters, to finish the year at about 2.8 percent, with growth heading up towards 3.5 percent over next year.

"The economy actually weathered the drought very well," Graham said. "Now what we are seeing is this confluence of factors that are all quite positive."

The New Zealand dollar recently traded at 83.70 US cents, from 83.31 cents at the 5pm market close yesterday.

AMP Capital expects the Reserve Bank to raise interest rates from March, citing positive consumer and business confidence, increased building activity in Christchurch and Auckland, positive net migration and very stimulatory monetary conditions.

Capacity constraints in the labour market are likely to start showing through over the course of next year, Graham said.

"All the signals are there that inflation is coming, it is just a question of when and how vigorously the Reserve Bank has to respond to that," he said.

A report tomorrow is expected to show inflation has moved back into the Reserve Bank's 1-to-3 percent target band, rising to an annual 1.3 percent pace in the third quarter, from 0.7 percent in the second quarter.

The Reserve Bank has signalled interest rates are set to rise from a record low 2.5 percent next year.

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