Jamie Gray is a business reporter for the NZ Herald

NZ exporters welcome lower Kiwi as trade issues loom

Thousands of shipping containers at the Shanghai Pudong International Container terminal in Shanghai, China. Photo / Mark Mitchell
Thousands of shipping containers at the Shanghai Pudong International Container terminal in Shanghai, China. Photo / Mark Mitchell

Exporters look likely to benefit from a weaker New Zealand dollar this year but they will nevertheless be concerned by the possibility of a return to trade protectionism, industry representative Catherine Beard said.

Beard, who is executive director of ManufacturingNZ and ExportNZ, said the currency - which analysts expect to decline against the US dollar this year - was always a big issue for exporters because of the impact it has on their margins.

Analysts expect the New Zealand dollar to come under more downward pressure against the US dollar this year as the greenback picks up steam in anticipation of more rate hikes from the US Federal Reserve and fiscal stimulus from a Donald Trump-led administration.

Much of New Zealand dollar's strength in recent years has been brought on by the relative weakness of the US dollar as America embarked on a policy of quantitative easing to get the US economy going ahead after the Global Financial Crisis.

The US Federal Reserve signaled a return to more normal conditions last year raised its fed funds rate by a quarter of a percentage point to a range of 0.5 to 0.75 per cent, which drove the US dollar higher and most other currencies - the kiwi included - lower.

Beard said that while the lower Kiwi was a welcome sight, trade issues looked likely to take centre stage this year.

President-elect Trump has been unequivocal about his views on free trade, last year saying he would withdraw the United States from the Trans-Pacific Partnership (TPP) "from day one".

"The bigger picture that exporters will be thinking about is the global trade dynamic, and so there are a few issues on the horizon - particularly the tough talk coming out of the Trump administration," Beard told the Herald.

At the same time, it was still unclear exactly how Britain's exit from the European Union (Brexit) would pan out on world markets, she said.

"The currency is definitely important but the bigger picture will be closely watched in terms of Brexit and what that means for trade," she said.

"We are trying to do a deal with the European Union and of course TPP is in no man's land," she said.

"We just have to hope that some of the talk does not turn into action, and that cooler heads prevail when it comes to the crunch," Beard said.

The New Zealand dollar has been firm in recent weeks but the general expectation is that it will edge lower this year as the US dollar regains its former strength.

"We expect to see a gentle depreciation of the Kiwi this year from US71c at the end of the first quarter to US68c by the year's end," ASB economist Daniel Snowden said.

Westpac senior markets strategist Imre Speizer expects the US dollar to strengthen this year and for most currencies - including the Kiwi - to fall as a result.

Like Snowden, Speizer expects to see US68c by the year's end. "We are not talking about a plunge, simply because the New Zealand economy is performing so well, compared to most countries," he said.

Late on Friday, the Kiwi ducked below US70c after the US dollar rallied on the back of data showing US employers added 156,000 jobs in December, and that the hourly pay rate jumped 2.9 percent last month from from December 2015 - the biggest increase in seven years.

Overall, US job growth remained steady but slowed a bit from 2015.

The kiwi's level would be a welcome sight for most, given last year's peak of just under US75c, Speizer said.

"Not so long ago, many hedgers and corporates would have been accustomed to something as in the low US70s as being a tolerable rate, so down here at US70c is certainly good news," he said.

ASB's Snowden said elections this year in New Zealand, France and Germany this year had potential to alter the currency outlook.

"There are a few more twists and turns ahead, so it would not surprise me if we have to do a few revisions (to our projections) at some point," Snowden said. "The crystal ball is cloudier than usual."

- NZ Herald

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