Falling kiwi suits exporters

Exporters will continue to feel less pain as the New Zealand dollar continues to fall after a United States jobs report showed the world's largest economy is recovering, leading to growing demand for the US currency.

The kiwi slid to a low of US78.2c yesterday, its weakest level since July 25 last year.

The US currency gained against most of its peers after a report out over the weekend showed US employment growth was higher than expected last month, increasing speculation the Federal Reserve may start tapering its $US85 billion ($NZ108.7 billion) a month asset purchase plan.

Craigs Investment Partners broker Chris Timms said it was pleasing to see a fall in the New Zealand dollar, which should support the export sector and keep the country's ''modest'' economic recovery on track.

Along with China, Australia remained one of New Zealand's largest export markets and for companies doing business across the Tasman, the A84c was the highest exchange rate seen for five years.

''This is a return to the long-term average rather than a significant shift upwards as we have been against the greenback in recent years.''

The US dollar had rebounded strongly in recent weeks with the kiwi falling more than 8% and the Australian dollar falling more than 9% against the greenback, Mr Timms said.

The recent developments were a timely reminder that even if the currency weakness is short-lived, at some point in the future, there will be a sustained recovery in the US, a reversal of recent monetary policy and a rebound in the US dollar.

''If the foreign exchange markets are correct and we are indeed on the cusp of an improving outlook in the US, the New Zealand dollar could continue to fall back in the US70c range - which is where fair value probably lies.''

The Fed policy of borrowing $US85 billion a month and using that money to buy Treasury bonds in the market had kept interest rates low, encouraging borrowing and investment as well as supporting property and share prices, he said.

A side-effect had been the negative impact it had on the US dollar as investors had been reluctant to invest in a currency offering very low interest rates and where the central bank was undermining its value by printing more of it.

''This has also played into the Fed's hands as the weaker currency has made the export sector more competitive and improved the earnings outlook for many US-based multi-nationals.''

In recent weeks, there had been signs emerging of a strengthening US economy, Mr Timms said.

A resurgent housing market continued to lead the way while other early indicators such as consumer confidence and a more stable employment market were beginning to follow.

That had led to speculation that the US economy was showing enough self-sustained growth for the Fed to be able to pare back its QE (quantitative easing) support in coming months, he said.

However, although the Fed next met on June 19 and 20, Mr Timms expected any tapering to be off the agenda until September or October at the earliest. There were five more Fed meetings this year but only three of them had a press conference component. They were June, September 12 and 13 and December 11 and 12.

 

 


Investor key point

 

Use the recent New Zealand dollar weakness to repatriate a tranche of funds to New Zealand. For investors who have been patiently waiting for the currency weakness to bring funds back, this is one of those opportunities.



 

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