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Kiwi dollar should be weaker: New Zealand Finance Minister

Tuesday, 4 Feb 2014 | 2:56 AM ET
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Bill English, Deputy Prime Minister & Finance Minister of New Zealand, says housing, inflation and outward investment are three issues that his government will have to combat this year.

While the New Zealand dollar has been singled out by some foreign exchange traders as the "hottest" trade of the year, the country's finance minister Bill English says he would like to see the currency weaker than current levels.

"Well look, it's higher than its 30-year average. It's been up in the $0.80-plus zone now for 6 or 7 years (so) I wouldn't say we're not comfortable. We would like to see it in the mid-$0.70s," English told CNBC Asia's Squawk Box on Tuesday. The New Zealand dollar last traded at 0.81 against the U.S. dollar.

"At this level though, our response is to focus on our competitiveness," he added.

(Read more: This could be the hottest currency trade of 2014)

Optimism over the outlook for the currency, also referred to as kiwi dollar, has been built around expectations that the Reserve Bank of New Zealand (RBNZ) will be the first developed nation to raise interest rates in the current cycle.

Bloomberg | Getty Images

"Some commentators think it's going to go higher as we get into the interest rate cycle, we believe most of the interest rate cycle has been built into the pricing now," English said.

The RBNZ is expected to hike the official cash rate, which is at an all-time low of 2.5 percent, at its March meeting.

'Rock star' economy?

The resilience of the New Zealand economy, which is expected to outpace most of its developed markets peers in terms of growth this year, has earned it the nickname the "rock star economy" of 2014.

(Read more: Rate hike talk boosts New Zealand dollar)

HSBC forecasts the economy will grow 3.4 percent in 2014 – the fastest pace since 2007 and well above trend growth of 2.5 percent. For 2013, the economy is expected to post growth of 3.0 percent, according to the bank.

However, English says there are a variety of concerns relating to the domestic economy that keep him up at night.

"We don't use the term 'rock star economy'...We have a housing market that's more expensive than it needs to be, and dealing with the regulations and political challenges around that is going to take a bit of perseverance," he said

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Bill English, Deputy Prime Minister & Finance Minister of New Zealand, lays out the country's plans to fight off global risks and sustain economic growth in 2014.

Inflation is also a key risk to the economy, he said, explaining that in a small economy it is difficult to get enough domestic competition to drive down internal prices.

Furthermore, English says while he believes the economy will largely be able to handle an increase in interest rates given corporate balance sheets are in much better shape, households may come under some strain.

"Households have still got debt levels that are a bit too high, so will be a test for some of them, but most of them have got their balance sheets back in order," he said.

(Read more: Markets focus on rupee, rupiah... and the kiwi?)

Meantime, from an external perspective, question marks over the growth outlook for key trading partners Australia and China remain a source of uncertainty for the economy, he said.

Nevertheless, on the whole, English says he is largely positive on the economy's prospects this year. "2014 will be a good year...Good economic reform, good fiscal management, improving the competitiveness of our export sector so we can balance back towards the exports sector, and that's what would give us longer-term growth rates," he said.

—By CNBC's Ansuya Harjani. Follow her on Twitter: @Ansuya_H

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