Overvalued Exchange Rate Matters

Overvalued Exchange Rate Matters for Manufacturers and Exporters - 24 August

The New Zealand dollar remains overvalued and has risen close to the TWI 15 month high experienced last month, following comments from the Reserve Bank of New Zealand yesterday lowering expectations of significant OCR cuts. The effect of our high and overvalued currency on exporter’s ability to compete and invest in the future cannot be ignored, say the New Zealand Manufacturers and Exporters Association (NZMEA).

NZMEA Chief Executive Dieter Adam says, “Despite talk of our currency correcting and moving on a downward trend for the last year, we have not seen this truly eventuate. The currency has risen 9 cents on the TWI since late 2015, where it briefly looked to be heading down the expected correcting path. The exchange rate remains at a level which threatens exporters and import-competing manufacturers’ competitiveness, as well as adding to the challenge of low inflation.

“The exchange rate has been systemically higher over the last decade - at some point we need to see some real action and assessment of how to combat this, especially if we are to ever meet our goals of increasing exports as a percentage of GDP.

“This pressure has short and long term effects, as margins are squeezed for extended periods of time, manufacturers become less willing and able to invest in the future, through technology, R&D and increasing staff numbers and skills.

“We have heard comments from Fisher and Paykel Healthcare, having to revise down revenue largely due to the currency, noting the potential for moving costs into their main markets to reduce currency risk in the longer time. We need to ensure the operating environment in New Zealand works for exporters to keep as much vital high-value manufacturing here as possible.

“These pressures also spread through the chain of local manufacturers, as many companies, small and large, rely on the demand produced from other local manufacturers. A loss in one area can have downstream effects on the manufacturing ecosystem as a whole and our capability to produce high-value products and innovate." says Dieter.

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