Key says high NZ dollar has benefits

Friday 25th January 2013

While other countries like Japan manage their currencies lower, New Zealand Prime Minister John Key says there are benefits to a strong exchange rate, even as it creates headaches for exporters.

In his state of the nation address in Auckland, Key said prices for primary exports are holding up and the country's terms of trade remain high.

That is helping to support a high New Zealand dollar, which is proving a head wind for other exporters and firms that compete with imports, Key says.

"But the flipside of a high dollar is that goods priced on world markets are cheaper than they otherwise would be," the former foreign exchange dealer said.

"This includes goods that are crucial to households like food, clothing and fuel."

The low prices are keeping inflation down and businesses are taking advantage of cheaper capital goods to invest in plant and machinery.

His comments come as BNZ economists predict that the New Zealand dollar will be strong for much of 2013.

The bank has an end-year target of 81.00 US cents, which compares with 83.65 cents in afternoon trading.

It says the liquidity being sprayed around by the big central banks around the world merely reinforces the fact that the New Zealand economy is in a better position.

BNZ forecasts the kiwi will fall to 74.00c by mid-2014 and 70.00 cents by mid-2015.

BusinessDesk.co.nz

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