Bernard Hickey: Dollar creates dire straits for exporters

The dollar seems set to rise towards US$1. Photo / David White

Thinking of buying a flat-screen television? Wondering if you should employ more people for your export business? Wait a bit, because our currency is set to become more powerful for importers and disastrous for exporters, and those who compete with importers.

The dollar seems set to rise towards US$1. The US Federal Reserve this week announced an unlimited plan for money-printing. It pledged to print US$40 billion a month and buy US mortgage bonds until unemployment was reduced to an unspecified level. This looks set to push the US dollar even lower against currencies that aren't printing money.

After the announcement the kiwi rose to a six-month high of over US83c, despite commodity prices being 11 per cent below where they were six months ago. It has also risen to almost A79c in the past week as signs emerge of a slowing Australian economy.

Economists now expect the Reserve Bank of Australia will cut its interest rates next year while our rates remain on hold until late next year, when they are expected to start rising. This would put even more upwards pressure on our currency measure, the trade-weighted index (TWI), which is also near a one-year high.

The world's other central banks are also stimulating and devaluing in an unlimited fashion. This month the European Central Bank unveiled its programme of unlimited bond-buying, the "Big Bazooka" many had been hoping for to stimulate the eurozone economy. This, too, is devaluing the euro versus the NZ dollar, which has strengthened 64 per cent against the euro since March 2009. No wonder new BMWs and Audis seem cheap compared with Holdens.

Even the Bank of Japan, which has been stimulating with zero per cent interest rates for almost 20 years, is considering fresh money-printing to drag its yen lower.

The Swiss National Bank has been printing francs for months to cap a rise in its currency against the euro. The People's Bank of China is also on the verge of fresh stimulus.

The rest of the world is engaging in beggar-thy-neighbour devaluations to stay alive. Yet we are standing aside from this and scratching our chins, wondering why the world is so unfair. All this chin-scratching is having real consequences. We have recently seen hundreds of job losses at Tiwai Pt, Spring Creek, Huntly, Kawerau and Tauranga.

The Reserve Bank's monetary policy report has noted a slump in manufacturing, particularly the import-competing type, in the past year. Imagine how much of an export sector we will have with a currency at US$1. Just imagine how cheap the iPhones will be.

Meanwhile, outgoing Reserve Bank governor Alan Bollard has reiterated that there is nothing New Zealand can do about these acts of economic gods. When has New Zealand believed it was so helpless on the world stage? This inability to fight for our own economic corner is an act of stupidity we will regret in years to come. But at least the iPhones will be cheap, eh?