Almost unnoticed, the NZ dollar has risen above 40p in the NZ$ / GBP cross rate. And it is still climbing.
In simple terms, it means that NZ companies exporting to the UK are getting fewer dollars back in NZ when they bank their GBP receipts. The screw is being tightened on exporters once more.
And it is not just GBP. In this morning's New Zealand Herald, an economist predicted that the NZ$ / US$ cross rate could increase to NZ89c to US$1 by the 2008 year end. That would decimate NZ exporters earnings to North America. Looking at the medium term, NZ exporters are facing the 'Perfect Storm'.
Interest rates in the US and the UK are declining whilst rates in NZ look on hold at best. The interest rate differential is becoming such that the US$ - NZ$ could become the new 'Carry Trade' of choice. There is little the Reserve Bank of NZ can do about this. With domestic inflationary pressures strengthening and the labour market remaining tight, there is little headroom for interest rate cuts. For NZ exporters, the currency climate for 2008 looks challenging indeed.
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