Australia could offer New Zealand some hope for economic recovery as the recession continues on for another quarter.
The trouble is, most of the hope falls squarely on the value of the New Zealand dollar compared with the Australian currency.
Unfortunately, the dollar takes on a life of its own, tied as it is to the fate of the United States dollar.
The current account deficit for March had some encouraging signs of recovery, with the annual deficit narrowing to 8.5% of gross domestic product, close to most expectations.
An OECD report out this week said New Zealand's economy was likely to suffer a large contraction this year as the global crisis hammered exports, consumption and business investment.
Only a sluggish recovery was predicted for next year, the Organisation for Economic Co-operation and Development said.
The Paris-based think tank also said monetary policy remained key to the country's economic stabilisation, noting that additional fiscal stimulus had been constrained by a sizeable increase in the Government's debt burden.
The report also said New Zealand's recovery could prove more vigorous than envisaged given the large amount of global policy stimulus.
But that could require earlier-than-expected official cash rate increases from the Reserve Bank.
Closer to home than the global policy stimulus is the report on Australia, in which the OECD predicts our transtasman neighbour is set to soar out of its economic downturn sooner and more sharply than forecast in the Budget.
While New Zealand's economy is set to shrink by 3% this year, the Australian economy should only shrink by 0.3%, less than any other OECD economy.
Next year, the Australian economy is set to shoot up by 2.4%, above Budget forecasts and more than any other OECD economy apart from those recovering from collapse in 2009. By contrast, New Zealand's economy should grow by 0.6%New Zealand's economic future hinges on an export-led recovery as the demand for imports dims with the recession - and Australia is New Zealand's largest export market.
But for that to happen, the dollar needs to be at a favourable exchange rate with its Australian counterpart.
Yesterday, the mid trading point was A80.13c.
The dollar was as low as A77.63c in March and as high as A84.52c in January.
If the Reserve Bank wants to do something to help hasten the recovery, its monetary policy intervention should focus on driving the dollar down against the Australian currency rather than manipulating interest rates, which are still as high as anywhere in the world.
