26 Sep 2014

Manufacturers back action on dollar

1:30 pm on 26 September 2014

The Reserve Bank should intervene to rein in the high New Zealand dollar, the Manufacturers and Exporters Association says.

The Reserve Bank should intervene to rein in the high New Zealand dollar, the Manufacturers and Exporters Association says.

Reserve Bank governor Graeme Wheeler warned again yesterday the exchange rate was unsustainable and was susceptible to a significant fall.

His remarks sent the already weakening New Zealand dollar to below US 80 cents for the first time in more than a year. The currency went as low as US79.08 cents but by midday was trading at 79.45.

Reserve Bank Governor Graeme Wheeler

Reserve Bank Governor Graeme Wheeler Photo: RNZ / Diego Opatowski

Mr Wheeler said the real exchange rate was well above its sustainable level according to the central bank's own analysis, and also above levels justified by short-term business cycle factors.

Past experience suggested that when the dollar started declining from an unjustified and unsustainable level, the ultimate adjustment could be large, he said.

The chief executive of the Manufacturers and Exporters Association, John Walley, said intervention options are available to the Reserve Bank.

"The trick is to find approaches where you can influence a market directly, keep the OCR (Official Cash Rate) lower than it would otherwise have been without that macro-prudential intervention.

"There are a whole range of such interventions and at some point the Reserve Bank is going to have to grasp the nettle.

Mr Walley said cutting the OCR would help ease the exchange rate but negatively affect the domestic housing market.

Federated Farmers, however, says the exchange rate should be left to market forces.

The strength of the dollar is being blamed for a steady fall in jobs in processing and manufacturing in the past six months.

Sealord yesterday announced about 100 job losses are possible at its Nelson fish-processing plant, citing the high dollar as a key factor.

Service and Food Workers Union spokesperson Neville Donaldson said unions had for months warned the high dollar was threatening jobs in manufacturing.

Jobs had gone at Independent Fisheries in Christchurch and Cerebos Greggs in South Auckland. "Now we have McCains (in Hawke's Bay) saying as a result of the high New Zealand dollar they're reviewing their business and likely job losses."

Markets in the mood to listen

Mr Wheeler's comments are not new - as he acknowledged yesterday. The central bank governor said essentially the same things in his last monetary policy statement earlier this month, and back in July.

The senior foreign exchange strategist at ANZ Bank, Sam Tuck, said the market was more receptive to the messages now.

"We've got economic justification in the commodity price falls. We've now had a 45 percent peak-to-trough fall in commodity prices and very little reaction in the currency.

"We also have the US economy improving rapidly and the markets re-evaluating whether they wish to be in New Zealand dollars, and we have concerns over slower rate of growth in China, our major export partner.

"So what that translates to is a very opportune time for the RBNZ to be expressing these sentiments. The market is in the mood to listen at the moment."

Currency analyst Derek Rankin told Morning Report even though the dollar has fallen nine cents since its peak during the year, it is still very high.

"At the beginning of the year the New Zealand dollar was at 82 (US) cents so at the current level of 79 it hasn't dropped all that much.

"It's gone up a long way and come down a long way but over the course of the year it's really only moved down about 3 percent."

Mr Rankin said the New Zealand dollar was still a very favourable investment because of economic problems in other parts of the world and high interest rates here.

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