You hear it mentioned on every night of the working week in the business section of the news broadcast. The New Zealand Dollar has dropped/risen against the Pound/Greenback/Yen/Australian/Euro. If one is planning on buying hard cash in a foreign currency or making a trip overseas, how the currency is performing becomes of interest whilst weighing up potential expenditure whilst gone. It is also of keen interest to those in export industries with overseas markets. Will the dollar be kind to ones revenue or it be a tough period?
The New Zealand dollar has remained stubbornly high for the duration of this Government. Even before Prime Minister John Key was elected to office, it had scaled heights never before seen by the New Zealand dollar – peaking at U.S.$0.87c in July 2008, before weakening as the Global Financial Crisis set in to about U.S.$0.51c. Since then it has recovered all of the lost ground, reaching US$0.73c in early 2010 and with the exception of a couple instances in 2012-2013 remained in the $0.80c range until 2014.
It is not just the United States where our currency is very strong. New Zealand is close to achieving parity with the Australian Dollar for the first time ever, with the N.Z.$ being valued as high as A$0.99c. In recent years it has recovered from being at A$0.80 a few years ago, the downturn of the Australian economy with job losses and less demand for mineral and coal exports to Asian markets such as China has taken some pressure off the Australian economy, though housing prices in places such as Sydney are as high as ever.
It is true that attempts at artificial intervention have been made to bring the New Zealand Dollar down. In 2012, New Zealand First leader Winston Peters introduced legislation to the New Zealand Parliament that was intended to make the Reserve Bank more flexible in dealing with currency issues. It was voted down 61-60. It was reintroduced in 2013 but again defeated 61-59.
So, why is it stubbornly high? There are several reasons:
- It is a highly regarded currency and has one of the highest trading volumes of any currency in the world
- Interest in the New Zealand property market amongst non-New Zealanders, as well as a skilled labour shortage and the Canterbury/Christchurch rebuild has inflated property prices
- Economic down turn in major nations around the world, notably Australia and Russia has made the New Zealand Dollar look increasingly attractive to investors
As for the reasons for the Government being reluctant to act, part of the issue is purely ideological. National as a party of lesser government believes a so-called market solution is needed, and that therefore interventionist measures such as that which New Zealand First tried to introduce are wrong and will damage the economy. Part of the issue is that the New Zealand currency is well regarded around the world and is popular with investors. It might be that unless the economies of the major trading partners such as the economy U.S., Britain and Australia and the E.U. nations pick up, people looking to make an investment with an eye to the future there is simply little interest in withdrawing from New Zealand.
I just hope that it does not take another financial crash to chill the dollar.