There's a lot of debate about a silver bullet solution for New Zealand's high dollar. The good news is there is one. The bad news is that we have no control over it.

It is called the US economy and it's a far more powerful driver of Kiwi dollar value than any political or monetary policy we have in our control.

Currency values are a measure of relative strength and while it is tempting to attribute the strength of the kiwi to our solid economy, that is really the smaller part of the equation.

New Zealand may look like a rock star economy right now but only because, by comparison, the US has spent the last six years playing Roger Whittaker tunes on the accordion.


When the Americans get their groove back we'll start dancing to their tune again.

Last month the US Federal Reserve cut back its stimulus programme in the belief that the recovery was starting to stick.

It is now effectively printing money - through its bond buying programme - at a mere US$45 billion ($52 billion) a month.

That's clearly still a long way from actually being healthy. Meanwhile, official US interest rates remain near zero, where they have been since the peak of the global financial crisis - and there is no indication that the Fed plans to raise them.

So the US currency remains artificially depressed and that is making currencies such as the kiwi strong by comparison.

The kiwi has been a hot pick for investors in the vast global currency market which see trades of some US$5 trillion every day. In the face of this kind of trading volume there is little this country can do to adjust the value - short of sabotaging the stability of our own economy.

If a political policy, such as Labour's proposed KiwiSaver idea, did succeed in keeping interest rates low then that might put some downward pressure on the dollar.

But the effect might just as easily be lost in the wash of the global currency trade. It seems unlikely that any savings policy will have the weight to push our rates lower than those in the US, Japan or Europe.

Meanwhile, by the time such a policy could be implemented we may not need or want the additional downward pressure on the currency.

At least not if the US economy continues to recover.

On Saturday (NZT) the latest US job numbers provided more evidence that the economy is recovering. The US created 288,000 new jobs in April, the highest rate for more than two years.

The unemployment rate meanwhile plunged to 6.3 per cent, down from 6.7 per cent, the lowest level since September 2008.

The figure was flattering as it came with a sharp fall in the overall size of the labour force but nevertheless the data was positive and may add more weight to the argument for the Fed to accelerate the tapering of the stimulus measures.

We've lived so long with a weak US economy that it is hard to be sure exactly what level of impact it will have on our economy in its current shape. But it is fair to say that should provide a double whammy of good news - along with at least one serious downside.

The first bit of good news is to do with that currency effect. The rise of the greenback, as confidence returns to the US, will cause our dollar to fall in relative terms. That's good news for exporters as our goods will be cheaper for international buyers and we will be more competitive.

A stronger US economy also tends to mean a stronger global economy - it will generate more demand for our exports and those of our main trading partners, China and Australia.

A stronger global economy is good news for all of us.

We know the growth rate in China is falling and putting downward pressure on commodities - particularly the hard commodities that Australia sells.

It would be ideal if the US economy could kick back into life in time to offset the China slowdown.

But the bad news is that resurgent demand from the US will push up commodity prices for things we like to buy and need to buy.

Oil prices will likely rise again and this coming in tandem with a lower New Zealand dollar could push the price at the pump up quite dramatically.

Then there is the increased cost of buying all those things that economists don't particularly like us buying anyway. Clothes, phones, TVs and overseas travel will all cost more if our dollar falls.

When economists talk about New Zealand benefiting from a lower dollar they do so because the nation is so overwhelmingly dependent on exports that it would likely equal a net gain for the nation.

But for most of us a significantly lower dollar would not be much fun. Given that dairy and other agricultural commodities have adjusted to cope pretty well with the high dollar it seems reasonable to ask just how far we really want it to fall.

In 2001 the kiwi traded as low as US38c and 28 British pence. Surely nobody would wish a return to those days. Looking back, they hardly recall any kind of golden era for New Zealand exporters.

As the US rebounds over the next few years we will see the kiwi fall but let's be careful what we wish for.

It is vital that we have good policies in place to keep the economy humming. We'll need to retain the confidence that global currency markets now have in our economy even as they turn back towards the greenback.