Comment: Why the kiwi dollar's dive fall is good news for the economy

The weaker NZ dollar will come as good news for the export industry. Photo/123RF.

COMMENT

Relax. The fall in the kiwi dollar is good news for the economy - even though it won't feel like it to anyone planning an overseas holiday.

Nobody is dancing in the streets because the Reserve Bank has finally got some traction in its efforts to reduce the value of the kiwi.

But after years of trying, they've done it and we should celebrate.

New Zealand is an export lead economy and right now it needs exports to lead more than ever.

That's because domestic growth - driven by house prices and immigration - has peaked.

Okay, for us consumers that's going to be a bummer.

The dollar dipped below US66c today - its lowest level since March 2016 - and is now down more than 11 per cent in the past six months.

The kiwi traded at 65.72 US cents as at 5pm.

The immediate impact of a lower dollar is higher petrol prices, a worse deal for holidaymakers and my favourite single malt whisky won't be getting any cheaper either.

Break out the tiny violin.

For years the Reserve Bank has viewed our currency as overvalued.

For years it has struggled to have any downward influence on the value of the currency because the weight of global trade was against it.

That's because our interest rates were higher than most of the rest of the developed world.

Last week - without even cutting the rate - Reserve Bank Governor Adrian Orr shifted market sentiment significantly with a clear and definitive statement.

He said rates would stay on hold for longer than previously forecast - into 2020.

Against the backdrop of a super-heated US economy, where rates remain very much on an upward march, the New Zealand dollar no longer looks like a great investment.

There are some dark clouds on the economic horizon adding to the downward pressure on the kiwi.

A Fonterra payout forecast cut and low business confidence have added to negativity.

But the beauty of New Zealand's open free market economy is that a lower currency is a natural hedge - it is the cure for these things.

Returns for exporters will rise in New Zealand dollars terms. And the wider margins will enable our exporters to compete more aggressively in international markets.

This is the reason an export giant like China tries to keep its currency low relative to the US.

It's also a boost for our tourism sector (we just got cheaper to visit).

At US65c the kiwi is not low by historic standards. In 2000 it bottomed out at US38c.

There's a balance to be found. Nobody wants to see those levels hit again. New Zealand is a wealthier country than it was 18 years ago and expectations have changed.

A large number of New Zealanders have benefited from the rise of the kiwi over the past decade - it has meant cheaper TVs, phones and made international travel accessible to more of us.

But we've been running on consumer power for too long and the cracks are starting to appear in the economic formula.

So suck it up.

There may well be short-term pain but if you want to see the productive end of the New Zealand economy humming again - creating jobs and boosting wages - then this is the medicine we needed.