NZ dollar hits post float record but exporters resigned

The New Zealand dollar traded at a post float record of US81.5c today but traders said the prospects of trading above US90c were not unrealistic.

The kiwi's latest spike was partly a function of US dollar weakness but more importantly resulted from a feeling the worst of the subprime mortgage and credit crisis was over.

"Now it seems like the worst case scenario is not coming about, investors are starting to turn back towards more traditional investments and they are starting to eye the high yielding currencies," Westpac currency strategist Michael Gordon said.

The kiwi, which floated at US44.44c in March 1985, today hit US81.53c, surpassing the previous post float high touched in July 2007 that sparked Reserve Bank intervention.

Reserve Bank Governor Alan Bollard, who said in April 2007 the kiwi's then level of US74.9c was "exceptional and unjustifiably high", was today silent.

Exporters were essentially resigned to the currency's rise, recognising neither Dr Bollard nor the Government will do anything.

In fact, some economists believe Dr Bollard will hike interest rates again to exacerbate the interest rate differential between New Zealand and the US, Europe and Japan.

"If you took the yield spreads literally, then the kiwi should have a 9 in front of it," Mr Gordon said.

Westpac forecast the kiwi would be around US80c-plus through the year but Mr Gordon noted currencies tend to overshoot when historic peaks or troughs are breached.

Westpac is picking two more rate hikes this year, but the global credit squeeze has acted as a pseudo hike by pushing up rates while the kiwi's rise has also been an effective tightening.

Mr Gordon said there is a prospect of the US Federal Reserve further lowering US rates to stave off recession, while there is almost no prospect of that happening here with inflation expectations published today showing inflation lingering near 3 per cent for two years.

For hedge funds, that means the kiwi is almost a one-way bet.

The Reserve Bank next week issues its quarterly review of monetary policy and economists are picking no change in rates.

"They will keep up the hawkish rhetoric because they don't want the market pricing in cuts and risk reviving the housing market prematurely," said Mr Gordon.

Export Institute chief executive Bob Walters said exporters are resigned to no policy change from the Government or Reserve Bank.

"Exporters are finding it incredibly difficult, but they are not talking about it that much because they keep asking for something to happen and there is absolutely no action being taken.

"After a while you shrug your shoulders and say `what's the point'."

No one expects anything from the Parliamentary select committee looking into alternatives to interest rates to influence monetary policy.

Mr Walters said the Reserve Bank had acknowledged a high exchange rate affected prosperity but then said it didn't know what to do about it.

The agriculture and fishing sectors had been hardest hit as they had few imported components to offset the high dollar.

"People who are trading outside Australia have been adversely affected by where it was in the last 12 months, let alone now."

He said the bank could no longer claim the housing market was the problem "because that has just gone through the floor.

"I think they should lower the rate and then if they want to fight inflation, they should find another mechanism as opposed to the single lever that they are trying to operate with just now."

Meat exporters were resigned to the kiwi's rise.

Keith Cooper, chief executive of Otago's meat company PPCS, one of the country's biggest exporters, said rising beef prices were offsetting the currency while lamb was mostly priced in euros.

But he added: "As an export country it (the high currency) can only be detrimental if we haven't got a sustainable export business."

He said there was already a migration from pastoral farming toward dairy farming but long-term change from a short term currency position carried risks and costs.

"New Zealand as a dairy farm is not that great for the environment," he said.

John Walley, chief executive of the Canterbury Manufacturers Association said interest rate cuts were not a long term solution for exporters.

The CMA called for a variable rate compulsory superannuation saving scheme to control money supply without damaging the trading sector.

"At present, the focus remains on the symptoms of the problems facing exporters and not the underlying causes.

"As long as the OCR (Official Cash Rate) is the only lever available to the RBNZ, nothing will change, the NZ dollar will remain strong on speculative pressure and conditions will not improve for our exporters."

- NZPA