KEY POINTS:
The kiwi dollar hit an 11-month low of US68.25c against the greenback this week, stoking hopes this is the sustained fall our exporters have been praying for.
Then again, the kiwi was trading around these levels a year ago, and even 14 months before that, but hopes were
dashed in both cases as domestic and international factors combined to send the bird back up to giddy heights.
This time around, though, currency experts suggest there a number or reasons to be quietly optimistic. In the short term, though, we could see the kiwi make some limited gains, says BNZ markets economist Mark Walton, who believes this week's fall "might be a little bit overblown".
The kiwi did bounce off its lows, closing for the week at US69.75c. Nevertheless, the trend, says Walton, "is clearly to the downside".
"We've maintained for a long time that the currency story is fundamentally related to the growth story and with growth in New Zealand weak and not expected to pick up any time soon we don't see a lot of reason for the kiwi to stay very strong."
But then again, more often than not, it is overseas influences - principally the fortunes of the US dollar - that drive the kiwi rather than domestic factors.
The kiwi's latest fall has been on the back of some rare strength in the US unit. The greenback has risen, not because currency investors fancy the US economy, but because major economies elsewhere have shown signs they have caught the US disease.
There is however, no guarantee the US dollar's recent gains will continue.
Westpac currency strategist Michael Gordon suspects not.
Gordon is picking the kiwi will experience "an orderly" decline for the next few weeks, hitting US67c by the end of the present quarter, US69c by the end of the year and US75c by September next year.
"Where we're likely to differ from other forecasters is our US dollar view. We're still not really that constructive on the US economy and for a while we've been looking for a "W"-shaped performance for the US dollar."
Gordon says the first downward leg of that pattern has clearly been seen, while the effect of US tax rebates has helped to stem the flow of bad news at the same time as the malaise spreads to other economies producing the first up leg of the "W".
"But then we're likely to see continued weakness through to mid next year before it really finds its bottom."
While John Body, head of currency markets at ANZ, acknowledges the risk that fresh US dollar weakness will again push the kiwi higher, "my sense is we're sufficiently through the adjustment phase in the US, most of the bad news has come out".
Body expects the kiwi to reach US65c by year's end which he believes is a "valid" target for the currency and one that probably reflects where long-term "fair value" lies.
The kiwi's "fair value" had, until the last year or so, been seen at around the US60c mark, but currency watchers including Body generally agree it has moved higher thanks to increases in commodity prices. Those increases are seen as structural rather than part of a cycle or bubble.
"If you're an exporter you've probably seen a big part of the benefit of this correction already."
Body says most of the negatives for the New Zealand economy - as well as six Reserve Bank rate cuts - have already been factored into the kiwi dollar's price. Even after the expected rate cuts, the kiwi will still boast an attractive yield compared with what's on offer in the US, Europe or Japan.
While the kiwi's fall this week was partly due to a spate of selling from Japan as some margin-trading retail investors were forced to abandon long New Zealand dollar positions, there still appears to be considerable demand for our currency. In the last day or so there have been reports of a new $345 million Uridashi issue by Toyota Finance managed by Daiwa Securities.
If the kiwi does get to US65c, says Body, "exporters should be saying it's time to put some long term cover in place".
"When you talk to importers and exporters, US65c is a number where most people kind of feel they can do business at," he says. "Overlay that with a kiwi-aussie around A80c and the present situation is quite beneficial for exporters."
Widening the picture even further, the trade weighted index, which closed at 65.05 yesterday is not far off its long-term average of 60, thanks to fresh recent lows against the euro and yen.
"Except against the US dollar, exporters have had significant benefits for the last three or four months," says Bancorp Treasury Service's Earl White.
The greenback's recent strength has seen those benefits extended to exporters who deal in the US currency, crucially a big chunk of the dairy sector.
"Talking to our exporter base, there are very few that can't make significant money with the kiwi US at below US70c. So I would have thought the export sector is going to have a very good next 12 months."
White warms to this optimistic theme. "There's a very good chance the rural sector is going to drag us out of this mire pretty quickly."
"There's been a very significant global meltdown in the finance markets a major dislocation in the banking sector and we've had two tepid quarters. So far we've come through this pretty well and if the currency can stabilise at these lower levels for a while and we get lower interest rates, you could see New Zealand Inc. bounce back quite quickly, and we haven't even started talking about the election and tax cuts."
