English says New Zealand dollar 'unsustainably high', out of line with commodity prices

Wednesday 23rd July 2014

Finance Minister Bill English said the New Zealand dollar, which hit a record on a trade-weighted basis this year, is "unsustainably high".

"I share the same view as pretty well anyone who looks at the New Zealand currency and says it's unsustainably high," English told BusinessDesk on the sidelines of a Trans-Tasman Business Circle lunch in Wellington. "Almost anyone who has looked at it comes to the conclusion it's somewhere 10 to 15 percent overvalued."

The New Zealand dollar has been hovering near its post-float high of 88.40 US cents before weakening last week on slower inflation figures and a fall in dairy prices. The kiwi has gained about 6 percent so far this year, recently trading at 86.74 US cents, as a revival in the local economy pushes up interest rates. Reserve Bank governor Graeme Wheeler is expected to hike the rate tomorrow for the fourth time this year, taking the benchmark to 3.5 percent and increasing the lure of the currency at a time when other major economies have their rates at record lows.

English said the currency appeared to be "out of line" with commodity prices. "I just observe that historical correlation, and it looks a bit high."

Still, he said New Zealand exporters had developed resilience because of the high currency.

"New Zealand is actually in reasonably good shape," English said. "We have had an export sector running at an 85 cent dollar now for five or six years and that has generated an enormous amount of shaking out in pretty much any business you can think of. It's a strong headwind for them and it is pushing more of them to do more."

"I've been pleased to see how many of the companies though are just getting on with that, rather than sitting there paralysed with something they can't change," he said.

BusinessDesk.co.nz

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