The New Zealand dollar is headed higher as a forecast fall in the US currency fails to materialise and the local economy keeps growing strongly.
Economists and businesses have differing predictions on the performance of the NZ dollar over the next 12 months. Photo: 123rf.com
ASB Bank economists are expecting the Kiwi to rise to 74 US cents over the next 12 months, in the bank's latest quarterly currency review.
But businesses surveyed by the bank have taken the opposite view and picked the Kiwi to fall to around 65 US cents.
ASB chief economist Nick Tuffley said the bank had changed its view because it didn't think the big-spending, tax-cutting policies of Donald Trump's administration, which would bolster the US dollar, will be in effect.
"We had previously expected Donald Trump's fiscal stimulus would swiftly move from drawing board to action, softening the NZD / USD this year. But we now expect additional US fiscal stimulus will be a long way off.
"By the time the stimulus appears, the New Zealand dollar is likely to be supported by domestic factors, such as a rising official cash rate."
Mr Tuffley said if the bank's forecasts were correct, exporters would have to protect themselves from a higher NZ dollar which will cut into their earnings by taking out currency insurance, known as hedging.