Households could soon start feeling the squeeze if the New Zealand dollar continues to fall, putting pressure on imported goods such as fuel, food and large-ticket items like flat-screen televisions and electrical goods.
Reserve Bank governor Graeme Wheeler took the unusual step this week of issuing an unscheduled statement calling the strength of the kiwi unjustified and unsustainable.
Exporters have been hurting this year as the dollar hovered in the high US80c and A90c ranges.
As the US economy started to strengthen, some weakness in the kiwi started to show.
Retail spending has been boosted lately as New Zealanders find themselves with more money in their wallets to spend on what are called luxury items - cars, electronics and homewares.
However, a falling currency could make even imported foods from Australia more expensive.
And there seems to be no relief on milk prices, despite Fonterra this week downgrading its payout forecast.
Federated Farmers is backing a call for a lower dollar. President William Rolleston said there was no basis for the strength of the New Zealand dollar.
With the global recovery gathering pace, investors needed to know it could drop like a stone.
Federated Farmers felt a fair value for the kiwi was in the low US70c range and the low A80c range. Yesterday, the dollar was trading at US79.5c and A90.2c.
Those buying the dollar had not grasped Fonterra had reduced its in-season milk price forecast to $5.30 per kg of milksolids, he said.
Dairy farm incomes this season were expected to be about $5 billion lower - equivalent to a 2.2% fall in national income. Despite that, in August New Zealand's effective exchange rate was 1% higher than its February level.
''You are talking for a primary industry worth one-quarter of New Zealand's merchandise exports battening down the hatches and that will radiate out to the wider economy.
"While it is not milk and disasters, investors need to take some smelling salts and wake up to the reality of the dollar is overvalued,'' Dr Rolleston said.
BNZ currency strategist Raiko Shareef said the Reserve Bank indicated strongly the dollar was overvalued. The content and method of delivery appeared designed to ignite a reaction in the dollar.
The Reserve Bank had long desired a better mix of monetary policies of a lower exchange rate and higher interest rates.
''It appears governor Wheeler has seen an opportunity to speed up the current pace of adjustment, even after the dollar's fall over recent months.''
Mr Wheeler argued the ''real exchange rate'' was above its sustainable level. Few analysts would quibble with that view, Mr Shareef said.
The central bank also pointed to the precipitous fall in dairy prices, highlighted by the GlobalDairyTrade index's 45% plunge since February.
It also noted the trade-weighted index, the basket of currencies of New Zealand's major trading partners, was ''just 4% below'' the historical high reached in July.
The implication was the dollar had failed to adjust as fundamentals might suggest, Mr Shareef said.
''We believe the statement heralds a significant shift in posture from the Reserve Bank. It is no longer satisfied sitting on its hands, waiting for the dollar to dawdle back to equilibrium.
"Those who thought the decline from the heady heights of July was significant have been disabused of that notion.
''We should be prepared for the Reserve Bank to be increasingly vocal on its assault on the dollar and, more importantly, we should not be surprised if it enters into an extended campaign of currency intervention to weaken the dollar,'' he said.
