30 Sep 2014

English sees good news in dollar fall

9:44 am on 30 September 2014

Finance Minister Bill English says the falling New Zealand dollar lessens a 'headwind" faced by exporters and an obstacle to the re-balancing of the New Zealand economy.

Speaking to Morning Report he said the Reserve Bank's intervention by selling $521 million last month in an effort to reduce the value of the currency was well-timed and the markets have listened.

Bill English

Bill English Photo: RNZ

And Mr English had no doubts the economy would cope with a falling dollar.

"We've got a resilient economy. It's got an ability to adapt to what was a very high dollar, it did a good job of that and if the dollar comes down, the economy will need to react to that. We've got every confidence it will do so."

Westpac chief economist, Dominick Stevens said the dollar is trending downwards for a variety of economic reasons.

He said the Reserve Bank's intervention was part and parcel of that downward pressure which included weak economic data coming out of China, the likelihood of a rise in interest rates in the US and falling dairy prices.

Mr Stevens said economic conditions in New Zealand had deteriorated and yet the dollar remained high and suspects the Reserve Bank will intervene again in the currency.

This morning, the New Zealand dollar is up slightly at 77.72 US cents.

After much speculation, the monthly figures published yesterday revealed the central bank sold $521 million in an attempt to devalue the kiwi, its third biggest sell-off.

The last time the Reserve Bank sold more than this was in June and July of 2007.

Business New Zealand hopes for currency sweet spot

Business New Zealand said it hopes the New Zealand dollar can find what it calls a sweet spot, where exports are competitive but imported goods are not too expensive.

Chief executive Phil O'Reilly said exporters will hope the currency falls further - but not by too much.

"If it's too low it increases the price of fuel, and increases the price of much of the imported materials manufacturers actually use to re-export. You want it in a sweet spot, it hasn't been there for quite a while."

Phil O'Reilly.

Phil O'Reilly. Photo: BUSINESS NZ

Mr O'Reilly said commodity firms such as foresters, the aluminium smelter and pulp and paper manufacturers will be the big winners from the fall in the currency.

ASB chief economist, Nick Tuffley said the Reserve Bank timed its intervention carefully and has succeeded in re-inforcing a downward trend that's been in place for the last couple of months.

"When the currency was going up, even though the Reserve Bank uncomfortable with that it was well aware that it's a bit hard to stand in front of a moving train and expect you can stop it.

"Now the currency is on its way down the Reserve Bank can quite easily reinforce that downward trend.

He said the intervention is an example of the Reserve Bank putting its money where its mouth is.

Get the new RNZ app

for ad-free news and current affairs