A higher kiwi dollar could boost New Zealand exporters’ productivity, leaving them better off in the long run.
Earlier this month the kiwi reached a record high against the euro, trading at a whisker under 70c – the highest level the kiwi has been valued against European currency since its inception.
And it seems the kiwi will continue to gain value against the euro.
CMC Markets trader Sheldon Slabber told NBR last week the European Central Bank (ECB) is throwing its currency under the bus to get more inflation and growth going in the eurozone.
He said the ECB certainly doesn’t have any issues with devaluing its currency further and it’s still at the start of the comprehensive quantitative easing programme.
It is a similar scene across the Tasman, with the kiwi dollar this week hitting a post-float high against the aussie dollar, with some economists picking parity by the end the year.
Despite policy makers and private economists claiming the kiwi dollar is overvalued, New Zealand Initiative executive director Dr Oliver Hartwich tells NBR a higher exchange rate may not be the kryptonite for New Zealand exporters many are predicting.
He says a higher exchange rate will work to increase exporters’ incentive to be more productive.
If the high exchange rate puts enough pressure on the economy and on the export industry, companies will be forced to improve and become more productive, he says.
He says that, rather than exporters just complaining about the high value of the dollar and talking about what a disaster it is for manufacturers and exporters, they should just “get on with it.”
“If it’s a challenge, then [exporters] just need to get better and it means they have to become more productive.
“This is do-able and is preferable to the alternative, which is to have a weak currency that keeps industry lazy.”
He says if an economy is not competitive, then it can become reliant on the “sweet poison of devaluing exchange rates.”
Dr Hartwich says the German economy pre-eurozone is a good case study when it comes to looking at the effects of a high exchange rate.
Germany had historically high exchange rates before it adopted the euro but at the same time it was always in the top three biggest global exporting nations.
“You would think the two don’t really go together, as with a strong currency exporters find it harder to export, but Germany never stopped exporting. In fact it set one export record after the other.”
He says when exchange rates are lower, there is sometimes a tendency for industry to start lacking competitiveness and at times become lazy.
“Quite simply, companies that fail to lift their game in the face of a rising exchange rate will lose part of their competitiveness.”
ExportNZ executive director Catherine Beard says the exchange rate is a variable of business exporters understand they cannot control.
She agrees with Dr Hartwich and says businesses will put more efforts into areas they can control such as productivity.
Ms Beard says as the value of the Australian dollar continues to decline against the kiwi, it’s logical for exporters to look at other markets that will be receptive to New Zealand’s goods and services.
“Exporters are quite adept at often putting more effort into markets where the exchange rate is more favourable.”
She says in a survey of exporters conducted late last year, ExportNZ found many New Zealand exporters are focused on the US market.
Ms Beard says the US is a big market and a good place to do business. As the value of the kiwi dollar declines against the greenback, she says many exporters will consider it a more attractive option.