Dollar drive on the cards still

By Lawrence Watt

Boom times are ahead for New Zealand travellers, says a money expert who is tipping the Kiwi and US dollars to reach parity next year.

Despite a slump on Friday that saw the Kiwi drop to a six-month low, below US78c, foreign-exchange expert Derek Rankin says the Kiwi will almost certainly get to US93c and could go higher. "The NZ dollar is on an upward path. We'll have a look at US93c and it's possible we'll see parity," says Rankin, partner in Auckland foreign-exchange advisers Rankin Treasury.

If that happens, Kiwi travellers' money will go further than it has at any time since 1974, when the dollar was worth US$1.20.

A mix of bad news in Europe and the United States and good news in Asia, South America and Russia are among the reasons the dollar should fly higher while the "old world" watches its currencies tumble.

New Zealand's food exports are doing well, so much so that farmers - "generally a grumpy bunch" - are now remarkably happy, Rankin says.

Money from the Rugby World Cup is flooding into New Zealand. Rankin estimates visitors will zip-zap $800 million to $1 billion over the "Cup fever" period. The spend-up may push the dollar up, as foreign banks buy it. And the Reserve Bank said this week it would eventually increase its historically low interest rates, which should also give the dollar a lift.

Banking analysts expect the US Treasury to print more money to shore up its sagging economy. Rankin says the US economy is looking "politically paralysed and has low interest rates". Next year's presidential election will also deflate the US currency.

He also predicts that Greece will default on its sovereign debt, pushing down the euro and making Kiwi dollars go further in Europe.

Not all experts are as optimistic about the high-flying Kiwi and buying power it would generate. BNZ chief economist Tony Alexander says although parity next year is possible, it is not the bank's central view. But banks have advised clients that the NZ dollar (sitting about US80c at present) could go above 90c next year. "As an investor, I'm quite happy to have money here," Alexander says.

For Kiwis planning an overseas holiday, a rising currency is great news. If you are not travelling until next year, Rankin reckons you are probably better off waiting before changing your money. If travelling in the next few weeks, he says you might as well change it now because the dollar is still high. Alexander also recommends not delaying when changing money.

Increasing numbers of Kiwis are travelling abroad. In July nearly 110,000 holidayed overseas, up from 96,000 last year and 93,000 in July 2009.

Reserve Bank figures showed they spent 7 per cent more in foreign funds on their credit cards than a year ago.

The US should provide better value than Europe, says Dallas Squire, a foreign-exchange adviser at OMF Financial - $1000 will buy US$800 but only just over €500.

But Rankin says Europe is still a good deal. "The pound is now two to one; it used to be three to one."

None of this means we should emulate drug syndicate leader "Mr Asia" and travel with a suitcase full of NZ dollars.

Squire uses Kiwi eftpos and credit cards rather than buying foreign currency.

Australia, riding on the back of China, is now an expensive destination. But Rankin believes the currencies will get closer as newly wealthy Asian consumers buy New Zealand food.

But what if the contagion from the US and Europe spreads? The Reserve Bank noted recently that it could be harder for the Government to borrow money.

Europe's financial troubles "could flow through to fundraising costs", says Reserve Bank Governor Allan Bollard. "If conditions did not improve, New Zealand bank funding costs would increase."

But Rankin says Kiwis focus too much on European and US news. We hear far less about good news from fast-growing countries such as Brazil and China, with which New Zealand is trading increasingly.

Europe represents just 13 per cent of New Zealand's trade and China is our second-biggest trading partner after Australia.

- Herald on Sunday

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