Drop in dollar would be welcome

The value of the New Zealand dollar could drop in the next few months, says the Reserve Bank.

That's the prediction in the bank's unusually forceful September Monetary Policy Statement, which says in part that the New Zealand dollar is 'susceptible to a significant downward adjustment over the coming six to nine months”.

The value of the New Zealand dollar could drop in the next few months, says the Reserve Bank.

'Such an adjustment would be welcomed by the bank as a move towards a more sustainable exchange rate level,” says the report.

The reasons for the predicted weakening of the dollar, says the bank, includes the fact global dairy prices have fallen by 45 per cent since February 2014 and Fonterra has cut its milk price from $8.40 per kilogram of milk solids in the 2013/2014 season to a forecast $5.30 kg/ms in the current season.

'The bank's analysis indicates that the real exchange rate is well above its sustainable level and also above levels justified by short term business cycle factors,” the report says.

Federated Farmers is backing that assessment.

'There is no basis for the New Zealand dollar's strength and with the global recovery gathering steam, investors need to know it could drop like a stone,” says Federated Farmers president Dr William Rolleston.

'Federated Farmers feels a fair value for the Kiwi is more likely in the low 70 cent range against the US and in the low 80 cent range against the Aussie.”

Those buying the dollar haven't grasped that NZ milk companies Fonterra, Synlait, Westland and Open Country have all dropped their payout predictions.

'It is going to be a buyers' market for milk for the rest of this season and the hangover will possibly continue into 2015/16, especially with European quotas coming off.”

The Reserve Bank report also says: 'Dairy farm incomes this season are expected to be about $5 billion lower – equivalent to a 2.2 per cent decline in national income”.

'Despite this, in August, New Zealand's real effective exchange rate was one per cent higher than its February 2014 level.”

William says that means the primary industry, worth one-quarter of New Zealand's merchandise exports, will be battening down the hatches and that will radiate out to the wider economy.

'While it is not milk and disaster investors need to take some smelling salts and wake up to the reality that the dollar is overvalued.

'If the dollar was at a fair value it would take a heap of pressure off dairy and immeasurably help the new stars of our primary industries, that being beef and sheep.

'A dollar close to fair value would allow sheep and beef farmers to make financial hay while the market sun is shining. They deserve a break but an ‘Unjustified and Unsustainable' dollar must drop in order to give them that break,” says William.

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6 comments

LOL

Posted on 28-09-2014 20:28 | By Capt_Kaveman

a weaker $ will just make banks and the rich richer


it wont happen,

Posted on 28-09-2014 20:57 | By GregAKL

Wheeler wont drop interest rates, and this is whats keeping the dollar high. Farmers just lost 6 Billion dollars, and Wheeler says the economy is going well. The media are ignoring U.S. dairy interests protests want NZ dairy banned and Fonterra broken up. Why?


Financially illiterate!

Posted on 29-09-2014 08:57 | By jed

Our dollar is high because other countries have been printing money-interest rates are a secondary factor to this.Our interest rates have been rising and the NZD is falling.Why?Because other countries are recovering and commodity prices are falling.As for a weaker dollar making banks richer, that is incorrect.Banks operate on margins and will profit regardless of the dollar level.


Not before time!

Posted on 29-09-2014 09:54 | By monty1212

The NZ dollar has been at least 20% to 30% too strong for a few years now and the sooner it returns to its true value the sooner this country will get back onto its feet again.


Kavey

Posted on 30-09-2014 15:24 | By GreertonBoy

It has always been the same... the rich get richer and the poor get the picture.... It wont ever change, For the rich to become rich, they have to get the money from someone....So they tell us what to do to increase their wealth..... and we follow along blindly....


So you think

Posted on 04-10-2014 23:00 | By Capt_Kaveman

petrol at a $2.86/L will make things better for NZ???? think not


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