7 Apr 2009

Dollar's volatility makes life difficult, say companies

10:45 pm on 7 April 2009

A rapid rise in the New Zealand dollar is less concerning than the currency's volatility, say both importers and exporters.

On Monday, the dollar hit a 12-week high against the US dollar of around 59.4 US cents, later falling back slightly to sit at 58.7 cents at about 6am on Tuesday.

Meat and Wool New Zealand chairman Mike Peterson says the volatility of the dollar is a bigger problem than a rising currency, as it affects confidence.

However he says the rising currency will eat into export returns in what has been an otherwise strong season.

Tourism Industry Association chief executive Tim Cossar says the previous lower level of the dollar has helped in an otherwise difficult climate, and has meant overseas tourists have had extra money to spend.

Both organisations say the effect of the latest rise will be softened because it comes at the end of a busy season during which they were able to take advantage of the low dollar.

The low New Zealand dollar has made for a tough year for Rob McArthur, who runs a small carpet business which mainly deals in imports. He says the latest rise only goes a little way to improving the situation.

Mr McArthur says the ever-moving dollar can be very difficult for small businesses to deal with.

Call for exchange rate system change

Business and Economic Research Ltd senior economist Ganesh Nana says the soaring exchange rate is the result of a knee-jerk reaction by the financial markets.

Mr Nana says New Zealand should introduce a managed exchange rate similar to that used in Singapore.

He says such a system would set parameters for the exchange rate, and would give the Reserve Bank the ability to intervene if it went outside accepted levels.

Dr Nana says New Zealand's currency is among the ten most traded in the world, which means the currency is being played with, to New Zealand's cost.