Strong NZD not bad for all

NIKO KLOETEN
Last updated 15:13 11/07/2014

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The high New Zealand dollar is causing some discomfort for manufacturers and exporters, but it is not all bad news.

The kiwi continues to hover above US88 cents today, not far off the post-float high of US88.42c. It is also close to a three-month high against the Australian dollar, trading at just under A94c.

There are signs the high dollar is starting to weigh on the manufacturing industry, which has been growing strongly overall in spite of the elevated currency.

Yesterday's BNZ-Business-NZ PMI figures showed manufacturing expanded at a faster pace in June although new orders were down slightly from May.

BusinessNZ's executive director for manufacturing Catherine Beard said exporters and manufacturers were "digging deep" to cope with the high dollar.

"I think we are doing a better job at dealing with the dollar than we did previously," she said.

"Manufacturers have got their heads around the fact we operate in a high-cost economy and they are not putting all their eggs in the low-cost basket. There is a lot of effort going into R & D and they are being very niche."

Beard said the high New Zealand-Australian cross-rate was of particular concern for high-tech manufacturers, for whom Australia is the biggest export market.

However, she said manufacturers were taking advantage of the kiwi's strength to buy imported plant and machinery at low prices.

"This will improve productivity and when the dollar comes down it will give them a real boost," she said.

Some manufacturers were benefiting from the exchange rate with the US being at a historically high level, including listed tapware maker Methven.

Methven chief financial officer Deidre Campbell said that was partly due to the structure of the company, which had wholly owned subsidiaries in Australia, Britain and China.

"Most of our currency exposure is on the purchasing side and the majority of our purchases are in US dollars, so in fact it helps us [if] the US dollar is weak," she said.

"We want the New Zealand dollar, the Australian dollar and the pound to be strong against the US."

The exchange rate with Australia and Britain also affected dividends brought back from the operations in those companies, but most of Methven's sales were still in New Zealand, she said.

Campbell said the dollar had been relatively stable in the past two years, but periods of volatility could make things tough for manufacturers.

"If the dollar is moving around and drops suddenly it means you have to go to the market and change sale prices, or do you wait it out and expect it to jump back up?" she said.

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"How much of the price change do you pass on? Do you need to go back and talk to your suppliers or have a look at your cost structures? It can be difficult."

- Stuff

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