New Zealand dollar peaks, nudging parity with Australian dollar

NZ Herald
7 April 2015

Economists warn of downsides for New Zealanders returning home and for exporters facing financial losses.

 

The Cricket World Cup final was an example of a more mature attitude towards the age-old trans-Tasman rivalry. Photo / Rod Emmerson
The Cricket World Cup final was an example of a more mature attitude towards the age-old trans-Tasman rivalry. Photo / Rod Emmerson

• The kiwi dollar peaked yesterday at 99.78c, nudging parity with the Australian.
• We have never been so close to parity with our neighbour since our dollar was floated in 1985.
• It’s good news for Kiwi travellers. Your money will go further on holiday across the Ditch. But Kiwi exporters to Australia feel the pain.
• The Reserve Bank of Australia meets today to try to resuscitate its flagging economy. Dropping interest rates could send the kiwi dollar higher, say experts.

The Kiwi dollar could finally equal the Australian dollar in value today, with some saying it’s just one more index of disparity to dissolve between the two countries.

Bloomberg recorded the New Zealand dollar at A99.78c yesterday afternoon, the closest the currencies have been since our dollar was floated in 1985.

All eyes will be on the Reserve Bank of Australia today as an interest rate announcement expected to cut the official rate even further to stimulate that country’s economy could mean the Aussie dollar loses further ground against other currencies.

Read more: NZ dollar may breach Aussie if RBA cuts cash rate

New Zealand’s economy is doing well out of Asian demand for agricultural products while Australia is struggling with the end of the global commodities boom as China’s growth slows.

We have never been so close to parity with our neighbour since our dollar was floated in 1985. Illustration / Rod Emmerson
We have never been so close to parity with our neighbour since our dollar was floated in 1985. Illustration / Rod Emmerson

Psychologist Chris Skellet said it was promising to see “one more index of disparity dissolve between the two countries”.

“It’s important that we assume equivalence between us rather than adopt a one up/one down perspective,” he said.

“No matter how Australians regard us, we need to adopt an unrelenting attitude of equality and respect towards our neighbours.”

Mr Skellet said the Cricket World Cup final was an example of a more mature attitude towards the age-old trans-Tasman rivalry.

“We don’t need to crow or brag about who we are, or feel humiliated if others crow at us. We are simply confident and proud of who we are, regardless of relativities across the Tasman. The exchange rate is only one index of economic health, but there will certainly be a feel-good factor when we regain parity at last.”

New Zealanders have already been making the most of the strong kiwi dollar, with visitor numbers reaching record highs, and that trend looks set to soar as the dollar is within reach of parity with the Australian currency.

Migration statistics show 1.2 million Kiwis holidayed in Australia last year, and some flight companies have reported booking boosts of 25 per cent so far this year, with a 40 per cent increase to some states.

While the tourism industry expected even more New Zealanders to travel to Australia, economists warned of downsides for Kiwis returning home and for exporters facing financial losses in the country’s second largest export market.

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Institute of Economic Research principal economist Shamubeel Eaqub said the two biggest impacts of the potential parity would be for Kiwis holidaying in Australia and New Zealanders returning here from across the Ditch.

“New Zealanders going to Australia to visit for a holiday … things are going to be quite a bit cheaper,” he said. “Theoretically it used to be for every A$1 you only got 80 cents, but now you are going to be getting, roughly speaking, 20 per cent more for your money.”

BNZ chief economist Tony Alexander said not only would trips across the Tasman be cheaper – but so too would goods and services while tourists are there.

Tourism Australia managing director John O’Sullivan said the favourable exchange rate was a welcome boost, as it meant Kiwis had more Aussie dollars in their pockets to spend in Australia.

Mr Eaqub said New Zealanders returning from Australia would feel the pinch.

“For those Kiwis coming back to New Zealand they’re going to have less money when they transfer their savings and income across than they previously would.”

There would also be an adverse impact on exporters, who would have the absorb the price of the dollar shift, at least in the short term.

Finance Minister Bill English said the strong New Zealand dollar would be tough for exporters sending their goods to Australia.

“We expect it will have some impact but these are very resilient businesses,” he said.

“On the other hand a lot of New Zealanders will be pleased to find that their Kiwi dollar has got similar purchasing power to an Aussie dollar.”

Despite the currency’s rise, Mr Alexander warned against Kiwis claiming bragging rights for the feat.

“I wouldn’t think that’s a very good idea because we just open it up to the Aussies saying, ‘Cricket’. In the long term, they will outplay our economy. In the past two years, they have simply had a few chooks that have come home to roost.”

Tourism New Zealand Chief Executive Kevin Bowler said parity could affect how many Australians came here.

“Sustained NZD parity with the AUD could well have an impact on Australians’ decision to choose New Zealand as a holiday destination,” he said.

“Whilst New Zealand is relatively more expensive for Australians than it was a couple of years ago, it still represents good value for Australian travellers compared to many overseas destinations or domestic travel within Australia.

“The specific impact of the currency on travel to New Zealand is something we’ll monitor carefully over coming months”.

– additional reporting: Isaac Davison

Travel fund goes a bit further now

Aucklander Anne Fulton travels to Sydney on Thursday for a monthly business trip – a $2000 investment she says will now go a little further thanks to a surging New Zealand dollar.

As chief executive of Fuel50, an Auckland-based career path software company with offices in Australia and the United States, Mrs Fulton travels across the Tasman one week out of every month.

She said the strong performance of the kiwi against the Australian dollar not only made accommodation and other trip expenses “a little bit more reasonable”, but was also helping the company extend its overseas markets.

Anne Fulton travels across the Tasman every month.
Anne Fulton travels across the Tasman every month.

“It is great to see New Zealand’s business confidence continuing to grow strongly right now, and [it is] definitely giving us some benefits as we establish operations in offshore markets such as Australia and the US,” she said.

Mrs Fulton said although the strong dollar had some negative effects on the company, with some contracts worth more under a weaker New Zealand currency, it would come in handy this weekend when she catches up with her two daughters who are living in Sydney.

A double-edged sword

Prime Minister John Key told TV3 that the strong New Zealand dollar was a “double-edged sword”.

“In a lot of ways it’s a point of celebration because it shows that our economy is doing well,” he said.

Exporters often have an importer component and markets would fix prices, he said.

“I do think it’s a sign of confidence in New Zealand.”

Mr Key said New Zealanders should only buy Australian dollars if they plan to use them, and said interest rates were likely to continue to go lower.

Labour finance spokesman Grant Robertson said the high dollar would mean incomes would stay lower for longer, making it harder for Kiwis to make use of the exchange rate on overseas trips.

“There’s no point in being able to spend relatively more money at Surfers’ Paradise if you don’t earn enough to save for the airfare.

“The real parity we need to work towards is parity of incomes. That’s when it’s time to have a parity party. But the higher our dollar is, the lower our incomes are.”

Mr Robertson said the real problem was the Reserve Bank was forced to keep interest rates higher to stop the housing crisis from exploding.

“If the Government stopped sitting on its hands and built more houses, [Reserve Bank governor] Graeme Wheeler would have more scope to lower interest rates and take the pressure off our dollar.”

– Scott Yeoman

kiwi vs aussie

What’s going on?

The New Zealand dollar has nearly reached parity (the same value) with the Australian dollar for the first time since our currency was floated in 1985.

How did this happen?

There are a number of reasons. First, the price of Australia’s biggest export, iron ore, has dropped resulting in less new investment in the large mining industry. Unemployment is on the rise and consumer confidence is low, the manufacturing industry is struggling and its government is under fire to make meaningful policy changes. New Zealand has also been credited for its strong trade ties with China, bustling construction sector, growth in higher skilled jobs and a popular, stable government. The Kiwi work-life balance and lifestyle are also winning praise.

What does this mean for Kiwis?

It’s a double-edged sword. Kiwis can enjoy holidays to Australia for record-breaking low prices and get more bang for their buck while they are there. However, Kiwis leaving Australia to return here will lose out on their savings, and exporters, unable to hike prices in competitive markets, will be forced to absorb financial losses.

• New Prime Minister David Lange and his stalwart finance Minister Roger Douglas began their first full year in power in 1985.

A massive transformation of the NZ economy had begun – and the March 4 floating of the NZ dollar was a big part of this plan.

Other notable happenings of 1985:

Author Keri Hulme won the prestigious Booker Prize for “The Bone People

On July 10, two French agents blew up the Greenpeace flagship Rainbow Warrior in Auckland, killing crewmember Fernando Pereira. It had been planning to sail to Mururoa Atoll to protest French nuclear weapons testing.

The Broadcasting Tribunal awarded the rights to broadcast a third television channel to TV3.

Labour MP Fran Wilde introduced a private member’s bill, the Homosexual Law Reform Bill, with the aim of decriminalising sexual relations between men aged 16 and over. Decriminalisation of homosexual acts between men eventually happened in 1986.

The NZ Rugby Football Union was forced to cancel a planned All Black tour to apartheid South Africa after a successful High Court challenge by two Auckland lawyers.

Sir Paul Reeves, Anglican archbishop of New Zealand, was sworn in as the first Maori Governor-General.

Netherworld Dancing Toys won Album of the Year and Single of the Year at the NZ Music Awards for its hit song “For Today”.

Steve Jobs resigned from Apple Computer in order to found NeXT, he would later return to the company when it neared the brink of bankruptcy.

39 people are killed at the Heysel football stadium in Brussels before the European Cup Final, leading to all English clubs being banned from European competition.

– Vodafone launched the UK’s first mobile phone network.

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