High NZ Dollar Challenging for Exporters

HIGH NZ DOLLAR CHALLENGING FOR EXPORTERS

The exchange rate issue

Executive Director of ExportNZ, Catherine Beard says the high and volatile New Zealand dollar is proving challenging for some of our exporters, and ExportNZ welcomes debate and discussion on what can be done to keep our exporters globally competitive.

The dollar will impact on different exporters in different ways. Those that have been selling mainly into Australia have had a currency advantage with the higher Australian dollar. Others have moved to internationalise their businesses, outsourcing parts of the supply chain, moving some manufacturing closer to markets and taking an increasingly more sophisticated approach to managing the currency risks. Less customer demand and subdued markets are increasingly mentioned as one of the major challenges for exporters
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While many economists advise us that our dollar is over-valued, some of this is due in no small part to influences outside our control (debt problems in the Euro-zone and economic slowdown in the US)
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The on-going fall-out associated with the global financial crisis in 2008 has encouraged some countries, including the US, to implement rather unconventional monetary policy approaches – such as quantitative easing (sometimes referred to as "printing money") which has adversely impacted on international exchange rates, including the NZ dollar. This is all the more reason we take action where we can to take internal pressures off our dollar.

The things that are in our control include re-examining how central and local government can avoid adding to inflationary pressures. For example:

• Freeing up the supply of land at local government level to make building a house more affordable.
• Ensuring tax policy takes account of its impact on monetary policy (for example any new government spending should be assessed for its impact, both short-term and longer term, on inflation).
• Introducing a Regulatory Responsibility Act to improve the quality of regulation.
• Reducing government and private sector debt where appropriate (high debt drives up interest rates as lenders demand a risk premium) – we need to stay the course.
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ExportNZ acknowledges that monetary policy is a complex area and many options have been explored already – click here for our thinking on this.

We do not want to pull on one policy lever and end up with a cure that is worse than the problem we started with. Having said that, the high dollar may not be at an end any time soon and manufacturers and exporters need to take out their own insurance as well (improving productivity, adding value through innovation, hedging their currency risk, etc).

New Zealand is not a low-cost place to manufacture and export from compared to developing countries – so we should aim to compete on value at the top end of the market, not on price at the bottom end.

This is the message that European manufacturing expert Professor Goran Roos has given to Australian manufacturers, and it is equally applicable to New Zealand.

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