Dollar hits five-month high, drops sharply

The New Zealand dollar has hit its highest level since early August, after comments at the Davos forum prompted concerns of a new currency war.

Yesterday the kiwi jumped above US74 cents, the highest it has reached in close to six months.

The peak was shortlived, with weaker than expected inflation figures causing the kiwi to drop sharply.

However, it remains above where it was just before the September 23 election, buying about US73.5C.

In general terms, a stronger dollar makes imported goods cheaper, with goods such as petrol affected most quickly. However, the stronger dollar also makes New Zealand goods more expensive, hurting exporters, and making New Zealand a more expensive destination for tourists.

Although HSBC said last week that it expected the New Zealand dollar to be buying US75C by the end of the year, the recent surge had more to do with a drop in the US dollar.

Breaking with the tradition of a policy of talking up the greenback, United States Treasury Secretary Steven Mnuchin endorsed the dollar’s decline, saying it would benefit the country’s economy, at least in the short term.

‘‘Obviously a weaker dollar is good for us as it relates to trade and opportunities,’’ Mnuchin told reporters in Davos, according to Bloomberg, adding that the current value of the US dollar was ‘‘not a concern of ours at all’’.

Westpac currency strategist Richard Franulovich said that Mnuchin’s comments appeared to be a departure from US policy.

‘‘Mnuchin’s comments give the impression of benign acceptance of the recent slide in US dollar and are a departure from the ‘‘strong dollar’’ mantra of Treasury secretaries before him, though they do fit the Trump administration’s ‘‘America first’’ policy,’’ he said.