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There are two questions I get asked more frequently than any other when I tell people I'm a business reporter. One is 'when should I fix my mortgage rate?' The other is "what's going to happen with the kiwi dollar?".
Interest rates are less of a movable feast than the currency, because setting the Official Cash Rate is the preserve of the Reserve Bank governor - speculators can speculate, but they can't influence his decision.
The dollar however, is another story. The kiwi is but a wee cork bobbing around in the global currency ocean, one often ruled by pirates - speculators.
An old colleague of mine used to answer punters' inquiries about the direction of the kiwi dollar like this: "I can tell you two things about the kiwi dollar - it will go up and it will go down".
Of course the trick is to picking when, and by how much.
Shamubeel Eaqub, the principal economist at the NZIER, calls picking where the currency might go a 'mug's game'. While currency traders might disagree, I can't see how it is anything other than a guessing game, a game of chance. Sure, you can look at the factors which might affect it and try to pick whether the data of the day will under-or-overwhelm the prevailing market view. But sometimes, it just does what it will.
So, after surging this week to a new post-float high of 82.64 US cents, will the kiwi dollar stay high, will it touch yet more new highs, or will it back off from its high?
Apologies all you avid currency watchers, or those trying to find the right time to convert their holiday cash - I'm not going to attempt to answer those questions. But I would like to address a different one - how is it affecting our export sector?
The trade data that came out this week makes it seem as though the impact is not all that severe. We saw an all-time record surplus in April and our terms of trade - that is our purchasing power based on what we earn - soared to a 37-year high - and it wasn't just all about dairy.
Shamubeel Eaqub told me on AMP Business this week "I'm not that worried about the currency, I think even at current levels we still have farmers doing exceptionally well and the rural economy's still very strong".
There is no doubt about that - in fact those high commodity prices are part of the equation that's resulted in such a high exchange rate. Just last week Fonterra raised its forecast payout for this season to record levels and set a record opening season forecast for next season. This week prices on Fonterra's online trading platform rose 4.5% to more than $5300 per tonne of milk solids. At these levels it is undoubtedly a boon for the economy.
The problem is, there is more to our economy than primary products and many sectors do not have the benefit of record-high prices to offset the impact of the currency.
For the many manufacturers who were already doing it tough, it must come as a kick in the guts that the dollar has got this high. One such manufacturer emailed me this week saying that every point the dollar moves up hurts his bottom line. His factory is already operating 20 hours a day just to keep the company treading water - they'd need to double production to achieve a reasonable bottom line. He says it's disheartening to wake up every morning and 'virtually see your profits shrinking'.
It's for this reason that many in the sector stopped investing in their businesses three years ago - that's according to the CEO of the Manufacturers and Exporters Association, John Walley, who spoke frankly about the situation on AMP Business this week. If there's no investment, there's little potential for growth and if this continues the sector will inevitably decline.
He says the answer lies in halting speculation, pointing out that the flow of capital in and out of New Zealand in a single day outstrips the value of what we buy and sell in a YEAR.
"One way or another we have to stop the hot money, speculative pressure on the currency, basically betting against or for what the Reserve Bank is likely to do, as a result of what's happening in a particular sector".
The way to do that, he argues, is through measures like capital controls or taxes on foreign exchange transactions.
We have to be careful though, because we're still a country indebted to external creditors and we rely on offshore capital.
However, a conversation about what could be done is one that needs to be had. Because although I said picking where the dollar will go is a mug's game, those still willing to give it a go are picking the kiwi could well go higher still - and it's hurting some of us enough already.
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Add a Comment:
Post new commentnztifosi said on 2011-06-03 @ 17:26 NZDT: Report abusive post
Just when my family was making headway financially the government chose to cut tax and put GST up. At the same time funding to the school I work at was cut resulting in an hours cut for me. Result? We are now worse off than ever before! And now we are supposed to spend, save, donate to Canterbury and every other charity as if the current situation were the working man's fault. It is the speculaters and the financiers along with the government who got us into this mess! -now they can get us out!
deltics said on 2011-05-19 @ 12:38 NZDT: Report abusive post
Saving isn't what NZ needs right now, it needs to pay off it's debt AND increase spending. Money paid into KiwiSaver doesn't reduce our current debts and doesn't circulate around or stimulate the economy! So it actually makes a lot of sense for the government to reduce the incentives to pay into KiwiSaver whilst emphasising the need to be more prudent in our spending (paying down debt) without closing our purse strings too tightly in the process.
ceejaygee said on 2011-05-15 @ 12:33 NZDT: Report abusive post
i currently pay 4% into kiwi saver i would like to pay 6% unfortunately there is no provision for that hopefully the govt have thought about that. as to the tax credit cut not a clever idea, maybe they could make it totally tax free then we could really save for our retirement then they could cut the tax credit altogether
Danthetaxpayer said on 2011-05-14 @ 19:10 NZDT: Report abusive post
I would also like to ask how is it retirement savings are even a priority when we fail so badly as a country to take care of our children? Children who are meant to be our future taxpayers helping to fund future NZ Super? Children who are often neglected, illiterate & who struggle to get the medical assistance they need due to health care shortages and whose families often have to fundraise? Why are these things not a priority?
Danthetaxpayer said on 2011-05-14 @ 19:07 NZDT: Report abusive post
I'm confused: how is it saving when most of the 1.67 odd million people with Kiwisaver are probably receiving some kind of government assistance. Assistance is for hardship and to meet basic needs - food, clothing, shelter only. If they have enough spare to put into Kiwisaver which then gets matched by more taxpayer funds earned by the hard work of others, then isn't this the horse before the cart? Further, how can it truly be savings when we are borrowing $300 million each week?