Cartoon by Hayden Smith.
Exporters and manufacturers face a double currency hammer
blow from the strong New Zealand dollar weighing in against its
counterpart Australian and United States dollars.
Some economists have picked the kiwi to trade above US80c
throughout the year. The BNZ has predicted a record high of
$US90c and the ASB around $US87c.
While consumers benefit from cheaper imports, ranging from
whiteware to computers and petrol, New Zealand manufacturers
trading in Australian or US dollars are paying more to
convert back to the kiwi, pinching already tight margins.
The stubborn kiwi had gained about 3% during the past
fortnight against the Australian dollar, trading up to a high
of A81.6c yesterday, while against the greenback the exchange
rate had moved from US83.6 to a high of US84.6 during the
The dollar's impact on manufacturers was part of the reason
behind almost 200 Oamaru mill workers facing redundancy by
the end of the month.
Similarly, commodity price gains reported earlier in the
week, for January, were undermined by the kiwi's
Statistics New Zealand's quarterly employment survey,
released this week, said manufacturing showed a 0.8%
quarterly gain in total filled jobs to 166,900 and a similar
gain in full-time equivalents to 186,700. However, the sector
lost 0.2% FTEs during the year to December, and 1% of total
Dunedin export manufacturer Scott Technology is exposed on
several fronts to foreign exchange rates. Its turnover last
year was about 20% from Australia and 40% from the United
Aside from immediate foreign exchange volatility, Scott also
has to consider the effects of having long-term payment
contracts, which can cover up to two years or more between
product design, manufacture and delivery.
Managing director Chris Hopkins said the cross between the
kiwi and Australian dollars was below the long-term average,
but still the result and effectiveness of hedging against
currencies could varied.
Scott is able to consider natural hedging - in goods imported
and costs paid overseas - and also had commercial hedging
contracts in place to lock in preferred rates for large,
''There is some natural hedging, in international freight,
installation and site costs in the country of final
destination. We also seek to purchase more from offshore, in
the US, Europe and China, when the New Zealand dollar is
strong,'' Mr Hopkins said.
The offset of Scott's natural hedging, against losses
incurred from the strong kiwi, could range from 5% to more
than 30%, he said.
The overall effectiveness of natural hedging, and hedging
contracts, was subjective depending on what a company's
ongoing revenue streams were, offshore in foreign currency,
and how it viewed the cost of the opportunity, he said.
On Tuesday, the Reserve Bank of Australia kept its cash rate
at 3%, in line with an earlier AAP survey of 15 economists,
where all but one expected the RBA to keep the cash rate
steady this month.
Craigs Investment Partners broker Peter McIntyre said the
kiwi had been ''range bound'' against the Australian, about
A78.5c-A80.3c recently, which only put more pressure on
exporters, with Australia being our largest trading partner.
With the RBA cash rate kept at 3% and the Reserve Bank of New
Zealand official cash rate retained last week at its record
low 2.5%, Mr McIntyre said any lessening of the difference
between the two would likely see the kiwi strengthen again.
Westpac senior economist Michael Gordon said New Zealand
dollar commodity prices for January were down 0.5%, month on
month, and down 10.1%, year on year.
''Export commodity prices rose slightly in January, though
not enough to counteract the rise in the New Zealand dollar
over the month,'' Mr Gordon said.
He expected further gains in world terms during the first
half of 2013, thanks to an improvement in Asian economic
growth and the lingering effects of dry northern hemisphere
''However, a stronger New Zealand dollar is expected to erode
some of these gains,'' he said.
ASB chief economist Nick Tuffley said it was likely the OCR
would not be increased until the first quarter of 2014.
'' But there is a growing possibility the Reserve Bank will
reach for its macro-prudential toolkit to cool the housing
market and credit growth in order to delay using OCR that
long,'' he said.
Adding to the pressure is that the kiwi is ''likely to remain
stubbornly elevated'', although Mr Tuffley noted the impact
of the high kiwi was spread unevenly across the trade-exposed
sectors of the economy.
''Import-competing manufacturers have faced more widespread
headwinds relative to the manufacturing export base, which
gets some shelter from a large exposure to Australia,'' he
During the week, the kiwi also rose against the euro as
European political reports renewed concerns about the
region's debt crisis and pushed the common currency down from
a two-year high against the greenback, BusinessDesk reported.
The kiwi rose to 62.49c from 62.03c, earlier in the week.
The euro weakened after a media report that Spanish Prime
Minister Mariano Rajoy accepted illegal cash payments
prompting calls for his resignation, while an Italian poll
showed former Italian premier Silvio Berlusconi closing the
gap on election front-runner Pier Luigi Bersani, according to