Crunch time for some as Kiwi dollar soars
A report in The Dominion Post in New Zealand says that the Kiwi dollar’s meteoric rise, up another cent to US81 cents in a day, is knocking an even bigger hole in some exporters’ profits, but is more good news for consumers.
The dollar eased back slightly at US80.87c at the end of the day.
Each US1c rise in the currency slashes more than $100 million off the export revenues of the sheep, beef and seafood industries combined and it will also hurt manufacturers, horticulture and the tourism industry, which is likely to see tourists stay for a shorter period and spend less.
“The currency at these levels is going to cause quite a crunch in some sectors,” according to Bank of New Zealand chief economist Tony Alexander, though how bad depended on how high the dollar went and how long it stayed up.
On the other hand, “to the average person in the city (buying imports) this dollar is looking pretty good”.
The high dollar is keeping petrol prices down about 20 cents a litre lower than it would have been if the dollar was back at US62c. It is also helping to push down prices for imports of electrical items like big screen televisions, computers and digital cameras by more than 12 per cent in the past year and phone equipment prices are down 20 per cent in a year.
Some commentators argue that it is no surprise foreigners want to put money here when New Zealand is enjoying the lowest unemployment rates for a generation at less than 4 per cent, strong job security, steady wage rises, a healthy sharemarket and the best run of economic growth for many years, with sustained low inflation in recent years.
The economy is getting a massive boost from just one sector, the dairy industry, which is seen as “fantastic news” for the economy overall, but there will be bad losers among exporters facing a high currency, Westpac Bank chief economist Brendan O’Donovan said.
The dollar gained an extra push on news that Dubai Aerospace plans a $2.6 billion bid for more than half of Auckland International Airport, this showing confidence in the New Zealand economy, even when foreign investors faced a high exchange rate, Mr Alexander said.
The dollar has also been rising because the Reserve Bank is widely expected to lift the official cash rate to 8.25 per cent tomorrow.
The US dollar is being pummelled against most other currencies, while the Kiwi is being boosted by “ballistic” dairy prices rising as much as 2 per cent a week, Mr O’Donovan said.
Reserve Bank governor Alan Bollard would be “extremely uncomfortable” with the high dollar, but Mr O’Donovan argued that he had to lift interest rates again tomorrow to get on top of domestic inflation, especially from the housing market.
If he did not act, then the dollar would stay higher for longer, adding to exporters’ pain.
In the early 1970s the dollar was worth more than US$1.40 and level pegging with the Australian dollar in 1972, but that was under a period of fixed exchange rates, compared with floating rates now, economists said.
Report by The Mole
John Alwyn-Jones
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