Thursday, July 4th, 2002

Exporters Warned To Batten Down Against Exchange Rate Surge

Exporters to Australia are being warned to brace themselves for much more difficult trading conditions after yesterday's widening of the gap between New Zealand and Australian interest rates to one per cent.

Exporters should expect leaner times far earlier than the Reserve Bank thinks, the Employers & Manufacturers Association (Northern) says.

"The Reserve Bank's decision yesterday to lift the Official Cash Rate to 5.75 per cent most likely signals another surge in the New Zealand dollar," said Bruce Goldsworthy, EMA's Manager of Manufacturing Services.

"The kiwi dollar leaped from around 43 cents US to 49 cents US in the three months to early June as the Bank increased the OCR by 0.25 per cent in each of those months. We expect the tsunami back again for exporters any time.

"In February the Reserve Bank forecast a slow appreciation in the exchange rate, but it leapt unexpectedly upwards as the US dollar weakened, and offshore financiers pushed funds here to take advantage of the differential between US and New Zealand interest rates.

"Unfortunately arbitrage-driven demand is also sending our dollar higher against Australia's.

"While the higher dollar has some benefits for importers of raw materials and equipment priced in US dollars, it is proving disastrous for exporters to Australia.

"In the 13 years from 1985 to 1998 the cross rate with Australia averaged 81 cents. One year ago it was 78.5 cents. Today it's 11 per cent higher at 87 cents and climbing.

"It's five years since the cross rate was at this level.

"No one forecast it would go this far this quickly. The highest predictions six months ago were for it to reach 85.5 cents sometime later in the year.

"For the year ended March our manufacturers sent $4.3 billion of goods to Australia, our largest export destination.

"A decade ago 40 per cent of manufactured exports went across the Tasman. This is now down to 34 per cent. While exporters have diversified their market destinations, they have also lost substantial market share in Australia.

"Yesterday's events will see margins for trans Tasman exports cut further, with small and medium sized exporters the hardest hit."

Ends

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