Posted on 21st August 2015 by Russell Phillips
Prime Minister John Key was reported as commenting “the strength of the New Zealand dollar against the Australian dollar reflected the perception among those who price currencies of which economy is in better shape” After reaching a high of 99.78 yesterday, just shy of equal rating for the first time since it was floated 30 years ago the NZ dollar is poised to achieve parity against the Australian dollar.
“It is a weakness in Australia as well … but I think over the last six or seven years we’ve seen growing confidence in New Zealand businesses,” he told Morning Report.
“They’ve used the historically high exchange rate, particularly against the US to buy a lot of capital equipment and to upgrade their businesses and build new markets.”
New Zealand’s exports to Australia are primarily crude oil, gold, wine, cheese, freshly-prepared food, and silver. Labour party leader Andrew Little said the exchange rate was because of the weakness of the Australian economy which is suffering from falling iron ore prices.
Mark Lister, head of private wealth research at Craigs Investment Partners, said although some people saw an Official Cash Rate cut as a solution to the strong Kiwi, the Reserve Bank was in a tough spot.
“I don’t think the Reserve Bank really wants to be forced to reduce interest rates to target the currency, because all that will do is add fuel to the fire with Auckland housing,” he said.
“They sort of want to keep us on a steady path. I don’t envy them at all. They are in a difficult position.”
Mr Lister said the recent spike this weekend was mostly due to the Reserve Bank of Australia expected to further cut interest rates later today.
“The Reserve Bank of Australia cut interest rates in February, so they are now sitting at 2.25 percent, remember New Zealand’s OCR is 3.5 percent, so there is already a gap there and that gap is likely to widen,” he said.
Mr Lister said China has had an impact on the situation, with a slowdown in demand for commodities such as iron ore putting pressure on the Australian economy, while New Zealand has been doing well.
The price of iron ore dropped to a new record low of $US46.70 at the weekend, compared to $US120 per tonne this time last year.
The strong dollar is good news for holidaymakers wanting to travel across the Tasman, and Brent Thomas of House of Travel expects 70,000 to 90,000 more New Zealanders to visit Australia over the next 12 months.