Another hard year for exporters forecast

Exporters appear to be in for another tough year as the New Zealand dollar surged past US84c this week, with an economist picking rates above US80c for most of the year. The exchange rate was above US80c for 75% of 2012, and never closed below US75c, BNZ currency strategist Mike Jones said.

Since December 31, the kiwi had gained more than US2c and yesterday pushed through to US84.5c on opening.

''The New Zealand and United States dollar exchange rate didn't eclipse 2011's US88.4 post-float high, but in terms of persistent strength, 2012 was the strongest year ever,'' Mr Jones said.

He said any dips this year below US80c were expected to be ''short-lived'', as several fundamentals were supporting the kiwi; the ''grinding'' New Zealand economic recovery continuing, commodity prices trending higher and the global economy now being ''past the worst''.

''Our forecasts have the New Zealand and United States dollar exchange rate holding above US80c for all of 2013, with US81 expected for the year end,'' he said.

The stubborn strength of the kiwi has been undermining overseas receipts for exporters, squeezing already tight margins, but at the same time assists consumers in delivering cheaper imported items.

Long-time critic of Government and Reserve Bank monetary policy, John Walley, of the New Zealand Manufacturers and Exporters Association, ''entirely agreed'' with

Mr Jones' US80c-plus prediction, saying the scenario posed ''two outcomes'' for New Zealand exporters.

''They will be gone; either gone and close shop, or gone offshore,'' Mr Walley said. His preferred model, to rein in the persistently high kiwi, was the Swiss example where in August 2011 they printed more Swiss francs and purchased euros, to contain the strength of the franc.

''The Swiss policy appears to have worked,'' he said.

He highlighted that bringing down the kiwi's value would be detrimental to

consumers, but a choice had to be made on ''cheap consumer items, or having jobs in the export sector''.

Exporters with ''options'', such as software, high-precision engineering, or those adding higher value to products, would be forced to consider taking some or all operations overseas, Mr Walley predicted.

ASB economist Jane Turner, in reporting the $700 million trade balance deficit earlier this week, said she expected to see some improvement in export conditions over 2013, with an improvement in meat and dairy prices and a recovery in demand from Australia and the US. ''Nonetheless, conditions for exporters are likely to remain challenging, with the recovery in global demand likely to be only modest and the elevated New Zealand dollar continuing as a headwind,'' she said in a statement.

- simon.hartley@odt.co.nz