5.00pm - By ANDREW MACDONALD
There can be little doubt that the New Zealand dollar put in a solid campaign in 2003.
Against the United States dollar it has appreciated 25 per cent to US65.62 cents in the December year - the bulk of its gains coming in the last 100
days of the year.
This after a 20 per cent gain in 2002 and despite two large hurdles - war in Iraq and the killer virus severe acute respiratory syndrome (Sars) - after opening at US52.42 cents on January 2.
In March and April the kiwi stumbled as the world watched the successful United States-led campaign to topple Iraqi dictator Saddam Hussein.
The onset of Sars at the same time did not help, and the kiwi broke its upward stride and dipped to US53.87 cents in early April.
It faltered again in December, albeit briefly, when Saddam was nabbed by US forces in an underground bunker.
Aside from these blips, says BNZ currency strategist Sue Trinh, it is the US dollar's "continued demise" since February 2002 that has driven the kiwi upwards.
"Add to that there was a kiwi specific story, which was relatively high interest rates against the US," she said.
The Reserve Bank of New Zealand kept the official cash rate (OCR) at 5.0 per cent for the December quarter, although it has warned of tightening monetary policy next year.
This compares with the Federal Reserve's decision to keep its OCR at 1 per cent and doing nothing to stimulate the greenback.
"Over the past 18 months you've seen a huge drive from global investors chasing yield (in New Zealand investments)," Ms Trinh says.
First NZ Capital research manager Barry Lindsay agrees.
However, he points out that New Zealand investors holding US shares have been hurt by the soaring kiwi.
"The (US) market is up about 25 per cent so anyone holding a US portfolio has seen all those gains in stock prices lost by the strength of the New Zealand dollar against the US dollar," he says.
"So, basically, they've made no progress at all."
Despite this, the trade-weighted index (TWI), which weighs the kiwi against the currencies of its five main trading partners, finished the year up about 11 per cent at 65.29.
"The reason that it (the TWI) has not risen as strongly as the kiwi has against the US dollar is of course that the kiwi has depreciated against the Australian dollar," Mr Lindsay says.
At market's close on December 31, the kiwi was fetching A87.47 cents, down 6 per cent from January 2.
"New Zealand investors in the Australian market have not been savaged to the same extent at all," Mr Lindsay said.
"In fact they've been advantaged by that fall against the Aussie."
Most market watchers agree that for commodity currencies like the aussie and the kiwi, 2003 was essentially a US dollar story.
Deutsche Bank senior economist Darren Gibbs says commodity currencies normally do well when a global recovery is taking place.
"Had the currency not moved and the commodity prices had not gone up it would have been boom times so in effect the two are pretty much offsetting each other.
"It looks like we're going to be trading into a favourable global environment so the demand will be fine - the issue is what kind of return are we going to make on our exports.
"Where it (the kiwi) goes form here is interesting."
Deutsche Bank expects the kiwi to hit US69 cents during the year ahead.
"You can certainly argue at those levels it will not be justified by fundamentals, but it has never stopped the market before.
"The kiwi has been going up almost vertically for the last little while - that normally doesn't happen for too long before you get some sort of a technical correction.
"We're probably due for a two or three (US) cent fall," he said, noting that would be consistent with an overall upward trend.
Ms Trinh says the kiwi will probably continue forging ahead over the medium term, possibly threatening the US70 cents mark in the 2004.
"When it (the kiwi) took off in September you had the G7 (Group of Seven) meeting in Dubai and that was a bit of a watershed event for currency markets," Ms Trinh said.
"Global officials (at the meeting) sanctioned US dollar weakness by referring to its decline as modest.
That gave "the green light" to the market to drive the US dollar even lower, helping it breach the key US65 cents mark several times and reach a high of US65.65 cents today, she said.
It also spawned jawboning - as market watchers have called it - from Finance Minister Michael Cullen.
Weakness in the United States currency threatened to dampen activity in New Zealand's economy, Dr Cullen said in September.
"We have somewhat confusing signals out of the US on these (currency) matters... and where is it going to leave the little small mouse running around the corner, which is the New Zealand dollar."
Later, in November, Dr Cullen said he had "options" to influence the value of the soaring kiwi and its negative implications on the nation's export sector.
However, Ms Trinh questions exactly what Dr Cullen can do to dampen the kiwi other than talking it down.
That means US dollar-sensitive exporters will have to shoulder the burden until the market turns in their favour, Ms Trinh says.
Mr Gibbs says there is little doubt that some exporters have been hard-pressed by the rising kiwi, particularly those in the forestry sector.
In November, Carter Holt Harvey (CHH) chief executive Peter Springford said the company was facing a more challenging environment with the strengthening kiwi.
"It is a sad reality that there will continue to be casualties as the industry does what it can to improve its competitiveness internationally," he said.
"Our focus on productivity is bearing fruit and beginning to offset the impact of the higher New Zealand dollar," he said.
For companies like CHH and the rural sector, Mr Gibbs said as "long as the currency doesn't go too much further (against the US dollar), the main issue will be the rolling off of hedges and how that impacts them.
"As long as world commodity prices remain solid, even after the hedges have gone, overall income in the farming sector will still be pretty solid.
"It's just they won't be as tremendously fantastic as they were a few years ago.
"Clearly it depends on how far the kiwi goes and how long it stays there once its gets there."
- NZPA
Herald Feature: 2003: Year in review
5.00pm - By ANDREW MACDONALD
There can be little doubt that the New Zealand dollar put in a solid campaign in 2003.
Against the United States dollar it has appreciated 25 per cent to US65.62 cents in the December year - the bulk of its gains coming in the last 100
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