The New Zealand dollar rose to a post-float high yesterday but it lost ground against the Australian dollar when that currency rocketed to a high in reaction to strong inflation data.
The NZ dollar rose to US87.61c, beating the post-float high of US87.40c at 11pm on Tuesday, NZPA reported yesterday. It was US87.52c at 5pm yesterday.
Although the agricultural sector and related manufacturing had led New Zealand's exports in the quarter to the end of June, the strength of the dollar was starting to concern farmers, Mr Wills, who is also a former banker and the rural lobby organisation's economics and commerce spokesman, said.
Despite that trade surplus and farmers being increasingly confident in the future, as shown by the organisation's recent farm confidence survey, the dollar was an emerging concern.
While the US debt crisis had largely been the cause of the Kiwi "taking flight", it could become an "inflationary time bomb" should it fall from favour.
One hint of that came when the trade surplus undershot expectations, Mr Wills said.
There was increasing speculation the Reserve Bank might use today's official cash rate (OCR) announcement to signal tightening as soon as September.
International commodity prices and an appetite for risk had been major factors in exchange rate movements. Any increase in the OCR would add upside pressure on the NZ dollar.
The best way the Government could help exports was with its fiscal policy settings, such as borrowing and spending, as well as reforms to make New Zealand more productive, adaptable and competitive, he said.
Yesterday, Beef and Lamb New Zealand chairman Mike Petersen said the stalled negotiations over a range of measures to tackle the US debt problem could undermine beef returns for the coming season.
Even though less than half New Zealand's beef was sent to the US, most of the beef traded in the world was in US dollars and the market indicator seemed to be based on the US dollar.
"The uncertainty in the US is driving their dollar lower and ours ... to fresh highs on the back of this and, as a result, farm gate returns are under pressure here in New Zealand," he said.
The medium and long-term outlook for beef remained extremely strong, with lower supplies and demand strongly higher.
Currency remained a major challenge and it was a tribute to the industry that farm gate returns at today's levels were being achieved, given the rise in the New Zealand dollar against all major trading currencies.
Another short-term issue was drought and the intense heatwaves in the US which had sent cattle to feedlots, as the only option of finishing them.
Placements for June were 4% higher than a year ago and also estimated to be up 4% in July, which indicated a "bubble" of beef on the market in the next few months and prices were trending down in the US as a result of that, Mr Petersen said.
