26 Sep 2014

Farmers back call for lower dollar

1:50 pm on 26 September 2014

The national farming lobby group has backed the Reserve Bank's call that the New Zealand dollar is unjustifiably and unsustainably high.

New Zealand dollar

The Reserve Bank has issued a warning that the dollar is unsustainably high. Photo: Photo NZ

Federated Farmers said investors needed to take some smelling salts and wake up to the reality that the New Zealand dollar is overvalued.

The federation said this season's payout to dairy farmers was falling fast in a buyers' market and said this would dramatically reduce New Zealand's income.

NZX Agrifax dairy industry analyst Susan Kilsby said there was no denying that the New Zealand dollar and dairy prices are linked and that every cent that the New Zealand dollar falls makes a big difference to dairy farmers.

"It'll make a big difference at the farm level, pretty much every one cent movement in the dollar will add 10 cents or so to the payout, so pretty positive news for the farmers," she said.

Federated Farmers believed a fair value for the New Zealand dollar was in the low 70 US cent range and warned investors that it could fall like a stone.

But some, like Westpac chief economist Dominick Stephens, were sceptical of the claims that the New Zealand dollar was unjustifiably high.

"I'm surprised that the Reserve Bank is as adamant as it is - we noted the New Zealand dollar never rose as far as it might have with the big lift in dairy prices that happened last year," Mr Stephens said.

"The second big reason for the very strong New Zealand dollar at the moment of course, is very very low interest rates in the United States which has driven the US dollar to a very very low level."

He said that a range of currencies were very strong against the US dollar.

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