Trade insulated from global currency wars

Friday 8th October 2010 1 Comment

The New Zealand economy should be insulated from the so-called "currency wars" between superpowers, thanks to Australia's humming economy and surging dollar, says Moody's Analytics.

In a note from economist Matthew Circosta, Moody's says the strength of Australia, New Zealand's largest market, is a positive for the local economy. The kiwi dollar has slumped 7.2% to 76.46 Australian cents from this year's peak in mid-July, "improving New Zealand's export competitiveness against its biggest customer".

Although the New Zealand dollar has followed its Australian counterpart higher against the greenback, this is unlikely to hurt the nation's export growth.

"What has been termed a global currency war has a silver lining for New Zealand, with kiwi appreciation unlikely to derail exports growth," Circosta said in a note.

"New Zealand's export outlook will also benefit over the longer term as demand for its soft commodities is sustained by growing population and rising incomes in Australia and Asia."

An appreciating kiwi dollar is often cited as a cause for concern among exporters, and since the global financial crisis calls for more capital controls on the currency have been growing.

The US and China have been at loggerheads over the strength of their respective currencies for several months, with the world's biggest economy pushing for its second closest rival to let the yuan appreciate.

That comes as Japan's government gave its central bank a mandate to intervene in foreign exchange markets after the yen topped a 15-year high against the greenback.

Meanwhile, there's mounting speculation the US Federal Reserve will have to ramp up its asset purchase programme to help revive a stuttering recovery.

That's kept the Dollar Index, a measure of the greenback against a basket of six trading partners, near nine-month lows of 77.40. The kiwi recently traded at 75.04 US cents from 75.58 cents yesterday.

Businesswire.co.nz

Comments from our readers

On 10 October 2010 at 6:41 pm gee said:

it is not just how much nz exports. the massive question is the higher the kiwi is againest the $us the lower payment we will get for our goods.all is not simple.