KEY POINTS:
The New Zealand dollar is ascending towards a post-float high, breaking the US73c barrier and with it the spirits of manufacturers and exporters.
The kiwi yesterday reached its highest level in almost two years at US73.13c, close to the US74.57 reached in March 2005. That was the kiwi's
highest level since it floated in 1985. The NZ dollar closed yesterday at US72.65.
Gordon Sutherland, managing director of bronze foundry and component maker A.W. Fraser, said confidence among manufacturers had plummeted.
The Christchurch company employs upwards of 180 people and exports about 90 per cent of its production. The United States is its biggest market.
"I get extremely frustrated with politicians and economic commentators going on about how export businesses have learned or can learn to handle a high dollar," Sutherland said.
The high exchange rate directly impacted on the firm's profitability.
"What it means is your profitability is not high enough for you to continue to invest in your business so that you're sustainable for the long term," he said.
Canterbury Manufacturers' Asso-ciation chief executive John Walley said the environment for the average manufacturer exporting mostly to Australia was a little better than at this time last year because of a more favourable cross rate.
However, for some companies, particularly high-tech manufacturers which tended to sell in US dollars, it was a disaster.
"We're damaging the manufacturing capability and hence the ability to respond to tomorrow's opportunities ... and when it's gone, it's gone. It won't come back."
The longer the period that some manufacturers' returns were affected, the more time they had to consider the risks and react.
"We'll see people potentially taking their businesses offshore, chasing lower costs somewhere else. They may not have done [that] had the dollar not remained this high for this long.
"We'll see people downsizing ... we'll see others ceasing to export or possibly ceasing to trade altogether," Walley said.
The effects of a proposed restructuring at Palmerston North-based manufacturer Click Clack, whose range of products include brushes, storage and drinks containers, could be felt within months.
Group chief executive John Heng said the proposed closure of the firm's Christchurch plant could be directly linked to the exchange rate.
The closure could come at the end of June, and production moved to the firm's Levin site, from where some work would be moved overseas.
The company exports between 85 per cent and 90 per cent of production to more than 60 countries and employs about 280 people, 70 of whom would be affected by the change.
"With this appreciating dollar over the past four years, to try and battle the impact of the currency, we've been looking at all sorts of ways and means to reduce costs."
A great deal of contract work had already been moved abroad, and 80 jobs cut through a process of attrition.
"It's all to basically try and get the bottom line sorted out and get profit in the business," Heng said.
"You can't keep on chasing your market and developing new markets when the place where you manufacture is killing it."
Engineering, Printing and Manufacturing Union national secretary Andrew Little said the number of manufacturing firms shedding labour had been gradually increasing.
"I think for a lot of them now, the struggle with the exchange rate and the impact on margins is leading to the point where they now regard it as in their interests to shed labour."
Bruce Goldsworthy, of the Employers & Manufacturers Association Northern, said most exporters would keep trading to retain established customers. "So the first thing that goes is your margin, and in some markets that happens very quickly, particularly in Asia."
According to Statistics New Zealand, basic manufacturing sector exports, excluding meat, dairy and seafood, continue to grow - 12 per cent in the year to February with a value of $14.7 billion.
However, the growth rate in the last quarter was down to 7 per cent, Goldsworthy said.
"So the benefits that we got early in the 12-month period are being eroded.
"[It's] very difficult to see how we're going to grow our exports significantly and rapidly with the currency at the level that it is.
"If the exchange rate continues its almost inexorable appreciation, we've got major problems ahead of us ... no doubt about that at all."
Major fall 'long way off'
The kiwi is unlikely to fall significantly in the near future, despite signs of support for the US dollar.
The kiwi and aussie dollars' highs were largely down to weakness in the US dollar.
BNZ currency strategist Danica Hampton believed the greenback was poised to make a modest comeback, which should rein in the local currency.
But the kiwi was unlikely to fall significantly in coming sessions, she said.
Currency markets had largely shrugged off last week's strong US jobs data and had remained focused on worries including the subprime mortgage market and trade tensions with China.
However, "improving data out of the US suggests we may see a bit of a rebound that should cap the upside in the kiwi".
Hampton believed commentary from the US Federal Reserve Bank due for release yesterday had potential to reassure currency markets the Fed was maintaining a relatively hawkish stance on interest rates.
On the local data front, Tuesday's Quarterly Survey of Business Opinion, showing capacity constraints and inflationary pressure within the New Zealand economy, had convinced BNZ economists the Reserve Bank would increase the official cash rate to 7.75 per cent on April 26 and may hike again in June or August.
That was likely to support the kiwi over the near term by adding to its appeal as a high yielding currency, Hampton said.
Royal Bank of Canada currency strategist Sue Trinh said "a meaningful dip below US69c looks a fair way away".
"At the end of the day the market's appetite for risk and for outright yield still remain very high and on that basis kiwi's still the cream of the crop."
- Adam Bennett
