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Exports squeal as Kiwi flews to peaks


Friday 22nd November 2002

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Exporters began squealing today at the rampant New Zealand dollar rose to a 21-month high against the US dollar, lifting its gain this year to over 20 percent.

The kiwi flew to US50.45c overnight and finished the week at US50.25c, up nearly half a cent from yesterday .

But it wasn't just against greenback that the kiwi flexed its muscles. It broke a four-year high of A89.90c against the Australian dollar and strengthened against all the currencies of New Zealand's trading partners.

Foreign exchange dealers said exporters could expect more pain and importers could rub hands in anticipation of cheaper prices.

"It's too high and it's bad for farmers," complained Graham Stuart, chief financial officer of the country's biggest exporter, Fonterra.

While Fonterra, which handles a fifth of New Zealand exports, had foreign exchange hedging in place for a year, he said if the currency held up, farmers would be adversely affected.

High real interest rates in a world that is shunning the uncertainty of sharemarket investments are blamed for the kiwi's rise.

It is one of the strongest currencies in the world this year and has risen a massive 21 percent against the US dollar and over 10 percent against the Australian dollar.

Consumers have already reaped some gains with petrol prices having dropped three times in the last fortnight, and they can expect more benefits in the form of cheaper cars, computers and other consumerables.

But exporters, on whom the country's wealth largely depends, are likely to feel more pain.

Farmers, particularly dairy farmers, are not only suffering the effects of the higher dollar, but are having to cope with falling commodity prices.

Export New Zealand vice-president David Binning accepts the New Zealand dollar was undervalued below US45c, but complained New Zealand's official interest rates were far above those in the United States at 1.25 percent and Australia at 4.75 percent.

"The rise against the Australian dollar from A79c to A89c is a huge increase when that is our largest export market for manufactured product," Mr Binning said.

"By the stroke of the pen of the Reserve Bank governor (Alan Bollard), exporters' competitive advantage is getting severely eroded."

Dr Bollard's stroke was to leave interest rates unchanged on Wednesday following the bank's quarterly monetary conditions review.

He decided to do nothing in view of a prediction of a 4.25 percent economic expansion in the March 2003 year -- faster than the bank believes is sustainable without fuelling inflation.

Mr Binning said he was aware of a number of companies which were reviewing their export prospects.

"We have just got a level confidence and we are seeing a massive erosion of competitive advantage because of the value of the New Zealand dollar."

He called on the Reserve Bank to eliminate the cost of housing from inflation calculations.

"It's very important to keep inflation under control... but you have to weigh that against having a sustainable productive sector which isn't being held to ransom every time inflation gets up."

Westpac chief dealer in New Zealand Basil Payn expects the kiwi dollar to push above US51c.

He said financial markets had expected the Reserve Bank's Monetary Policy Statement to be more accommodating and when that didn't eventuate, investors piled into the kiwi.

"It's reinforced the interest rate differential and that our monetary policy is significantly tighter than most other countries in the world.

"A lot of them (investors) can't believe our interest rates -- it's just too good to be true," Mr Payn said.

He said the Australian dollar was not doing as well because of the drought there and its high trade deficit. The terrorism threat was not a factor, he believed.

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