Currency deal 'symbolic'

LAURA WALTERS
Last updated 05:00 20/03/2014

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The direct currency conversion agreement between New Zealand and China will help trade relations and may cut down transaction costs for kiwi exporters, Export NZ chief executive Catherine Beard says.

Prime Minister John Key said in Beijing the New Zealand dollar would become the sixth currency to be allowed direct trading with the Chinese renminbi.

This would mean exporters trading with China would not have to convert through US dollars.

Export NZ chief executive Catherine Beard said the agreement could lead to a reduction in transaction costs for companies exporting to China.

Whether that saving was passed onto companies from the banks remained to be seen, Beard said.

"Symbolically, it's quite important to show that we do have a great trading relationship."

Exporters would be unlikely to make an immediate change away from converting through US dollars but if there was value to be had through a direct conversion there was no reason why they would not make a gradual change, she said.

"It's more symbolic than anything but it's still to be welcomed."

It was another step towards removing barriers to doing business, she said.

Les Kendall, chief executive of heat pump and air conditioning business Temperzone Group, said the agreement would benefit his business as it increased its exports to China.

Kendall said the direct currency conversion agreement would reduce currency exchange risk and transaction costs.

There was also the benefit of simplifying the payment and administration process, he said.

"Having the ability to pay and receive in renminbi may expand the pool of potential trading partners in China and enhance the trading relationship."

Having another traded currency should also improve liquidly of the renminbi and reduce the buy and sell spread, Kendall said.

There was no reason for there not to be a "fairly rapid" uptake in New Zealand dollar-Chinese renminbi transactions, especially if the currency became fully-floating and any non trade-related restrictions were lifted, he said.

New Zealand wine company Villa Maria has been exporting to China since 2000.

Villa Maria commercial general manager Rob Ferguson said in the short-term the company would not save money through the direct conversion agreement. However, there would be benefits over time as trade with China continued to grow.

BNZ currency strategist Raiko Shareef said the deal showed close ties between New Zealand and China, whose demand for this country's produce was a "huge driver" of New Zealand dollar strength. However, in the near term, the deal would not change the amount the kiwi was traded or the way large New Zealand exporters traded with China, he said.

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"For the time being it's something that more looks good," he said, adding New Zealand exporters would still invoice in US dollars.

ANZ senior foreign exchange manager Sam Tuck said the agreement would establish a benchmark exchange rate for the market to follow.

- BusinessDay

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