New Zealand dollar falls to lowest since 2020 as value of pound hits currencies
A local construction supplier said the price of steel jumped 10% over the weekend, following a sharp drop in the value of the New Zealand dollar.
The New Zealand dollar had fallen more than 3% since Friday to 52.26 US cents – a low last seen during the March 2020 lockdown.
It was triggered by the announcement of Britain’s new “mini-budget” which promises to cut taxes but increase borrowing.
The strength of the plan upset investors, who aggressively sold sterling, driving it to an all-time low.
The sell-off rippled through the financial system, affecting currencies across the board, including the New Zealand dollar.
Local steel supplier Tiger Saw, which imports products for the domestic market, has witnessed firsthand the effects of the falling dollar.
Tiger Saw chief executive Brent Curnow said the sharp drop had been costly for his company and its customers.
“The price of steel increased by 10% over the weekend. This relates to US dollar exchange rates, as all imported products for steel are purchased in US currency, so this had an effect dramatic.”
The higher costs would be passed on throughout the building’s supply chain, meaning the end consumer would ultimately pay, Curnow said.
Rising costs were also dampening demand for residential construction, but commercial construction activity was better positioned to weather price shocks, he said.
The recent selloff of the New Zealand dollar against the greenback was not isolated.
Currencies around the world have been hit this year by aggressive monetary policy tightening by the world’s largest central bank, the US Federal Reserve.
The New Zealand dollar was down around 17% for the year because the higher rates available in the United States, as well as the security it offers in times of global economic uncertainty, had seen the index of the US dollar – which measures the value of the greenback against a basket of currencies – hit its highest level in 20 years.
Hamish Pepper, currency strategist at Harbor Asset Management, said that against this backdrop, the fall in the New Zealand dollar was not unusual.
“I think it’s a reaction that we’re somewhat used to, where if there’s concern in the world, if the stock markets are falling…we’re a currency that reflects that concern.”
The weak local currency would drive up the cost of imports, including fuel, Pepper said.
On the other hand, exporters would experience increased demand for their goods and services as they would be cheaper, he said.
Bagrie Economics chief executive Cameron Bagrie also predicted that New Zealand consumers would have to pay even more for goods and services sourced from overseas.
“Foreign travel is going to get more and more expensive if you find yourself in a destination with an American denominator.
“At the moment, we are diverting the fray from the import of goods, from the domestic consumption of these imported items to the export sector,” he said, adding that farmers would be one of the sectors likely to benefit from it.
Tourism and export sectors would benefit from weak dollar, Bagrie said Checkpoint.
However, the president of the Backpacker Youth Adventure Tourism Association, Brian Westwood, said the weak dollar would not necessarily encourage more people to come to New Zealand, as the cost of flights was high compared to other places. country.
However, Westwood said a cheaper dollar meant people who were already planning to visit New Zealand had more to spend.
“Generally people will have a budget in their own currency and they’ll be willing to spend a certain amount, and if that buys you more on the pitch, that definitely has an advantage.”
Pepper said this dynamic was the exact opposite of what the Reserve Bank was trying to achieve by raising interest rates.
“He wants to see the inflation that we inherit from the rest of the world go down and he wants to see domestic economic activity slow down,” he said.
“A weaker currency goes against both of those things.”
The Reserve Bank (RBNZ) may need to do more in its fight against high inflation, he said.
RBNZ Governor Adrian Orr said New Zealand [https://www.rnz.co.nz/news/business/475565/tightening-cycle-to-control-inflation-well-advanced-adrian-orr
still had more work to do to combat inflation]but he was getting there.
Inflation at 7.3% was too high, but it was coming down, and New Zealand was in a “great” position compared to many other economies, Orr said, although he admitted wages were “challenged” by inflation.
“We have a little more to do before we can go back to our normal happy place of watching, worrying and waiting for signs of rising or falling inflation.”
The RBNZ was expected to hike another 50 basis points to take the official exchange rate to 3.5% at its next policy meeting next week.