Kiwi dollar hits trade surplus, worrying farmers

While the agricultural sector and related manufacturing has led New Zealand’s export efforts in the year to June, the strength of the New Zealand dollar is starting to concern farmers.

“June’s trade statistics really show how all exporters are paying New Zealand’s way in the world,” says Bruce Wills, Federated Farmers President and economics and commerce spokesperson.

“While New Zealand turned in a trade surplus of $230 million and farmers are increasingly confident in the future, as shown by our recent farm confidence survey, the dollar is an emerging concern.

“This time a year ago the Kiwi was buying just over US$0.71 but now it has hit US$0.87. Some five cents of that appreciation has come since June and currency hedges can only insulate exporters for so long.
“Our dollar’s strength is helping to keep a lid on inflation but its costing export returns. While the US debt crisis has largely been the cause of the Kiwi taking flight, the Kiwi could become an inflationary time bomb should it fall from favour.

"One hint of this came when the trade surplus undershot expectations. That saw the dollar dip slightly before the on-going US debt crisis pushed it though US$0.87.

“On the other hand, there’s increasing speculation the Reserve Bank may use Thursday’s Official Cash Rate (OCR) to signal tightening as soon as September. Questions remain over how long the 50 basis points factored in for the Christchurch earthquake will now last.

“International commodity prices and an appetite for risk have been major factors in exchange rate movements. All other things being equal, any increase in the OCR will add upside pressure on the New Zealand dollar and I’m certain the Reserve Bank is well aware of that.

“While a policy juggling act, the best way Government can help exporters is with its fiscal policy settings, like borrowing and spending, as well as reforms to make New Zealand more productive, adaptable and competitive.

“Exporting is a team effort because much of what we produce on-farm is processed for export in the cities and towns. Tens of thousands of people outside the farm gate are as much involved in the primary sector as we are inside the farm gate,” Mr Wills concluded.