Currency key to further falls in petrol price

JASON KRUPP
Last updated 05:00 26/03/2013

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Fresh from a 2 cents a litre drop in the price of petrol, economists say consumers are likely to see costs at the pump fall further this year - but that's only if the already high currency gains ground.

Petrol is now selling at 216.9c for a litre of 91 octane, having eased 4c since the near-record high of 220.9c it reached in mid-February.

If the New Zealand dollar keeps rising as economists expect, petrol could fall towards about 210c a litre in time, economists said.

The Automobile Association, meanwhile, is calling for further cuts to the price of petrol, with spokesman Mark Stockdale saying retailers have enough room in their profit margins to pass on further savings to motorists.

Fuel retailers say the latest 2c-a-litre drop was due to the near collapse of the Cypriot financial system, which caused some speculators in the market to trim their forecasts for global growth, and hence demand for fuel.

But economists say those headwinds are likely to be temporary and limited to the European Union.

The United States, the world's biggest economy, is tracking towards recovery, and China's pace of economic expansion is also gaining steadily.

Experts say that should put a floor under crude oil prices, which are the chief determinant of petrol costs.

That put the spotlight square on the strong New Zealand dollar, which has been the main factor insulating drivers from the effects of higher fuel commodity prices.

The kiwi has been tracking upwards in step with higher oil prices over the past year, and experts are betting New Zealand's relatively positive economic picture will continue to push the kiwi higher.

Gross domestic product figures for the December quarter show the economy grew at a 1.5 per cent pace, beating consensus expectations of about 1 per cent.

ANZ senior foreign exchange manager Sam Tuck said that had increased the appeal of New Zealand in the eyes of international investors, who were likely to support a higher New Zealand dollar.

All of the major banks are betting the kiwi will gain over the course of the next nine to 12 months, peaking at US86 cents from about US83.50c at present.

If the dollar rises that far, ASB economist Christina Leung anticipates petrol pump prices could drop as low as 210c a litre by the end of the year.

"I expect petrol prices have little scope to fall much more than that," she said.

The experts are quick to warn, however, that it is unlikely to be a straightforward ride.

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- BusinessDay.co.nz

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