I asked a specialist finance academic, now resident overseas, what he saw happening to the NZ dollar in the near future. This is his reply;
It is impossible to predict the timing of major financial events. Having said that, it will take some event to cause the NZ dollar to fall rapidly. But I would think that the upcoming tax that Dr. Cullen has imposed on overseas assets beginning April 1, 2007 is a starter.
The debt level in NZ is a grave worry, but especially that NZ has borrowed this money from overseas and 50% of it in a foreign currency.
If I was a betting man, and I am, if and when Dr. Bollard raised rates next time, this will cause a very short term up lift in the NZ dollar. I would definitely not want to hold $NZ for which I had no direct need. The $AU at an exchange rate of 0.90 is better place to park money. Most eperts know that the Japanese Yen is undervalued. However, it could stay undervalued a long time.
If you need $US going forward like for a trip to US, I would exchange them after Dr. Bollard raises rates next time. But once again, forecasting the timing of foreign currency moves is difficult.
My point is that there is HIGH risk in holding NZ dollars after Dr. Bollard raises rates. And if the LABOUR wins the next election, then I would run for the hills.
It will be interesting to see if these pssibilities pan out. I’m no financial expert but I find it hard to see our economy expanding indefinitely based on over-valued home equity.