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Leader's LetterJune 2006
Wither the DollarThe one consistent observation that can be made about the state of currency is that whether its position is favourable or not depends very much on circumstances and perspective. If you’re an importer or consumer of imported goods, a high dollar is good because you get more for your money. If you’re an exporter, a low dollar is good because you receive more money for your commodities. Therefore, whether the dollar is in a “good” place or not is quite subjective. Another observation that can reasonably be made is that it’s difficult to predict currency fluctuations, and that swings and roundabouts are the name of the game. In recent years we’ve seen the dollar fluctuate between around 40 and 70 US cents. Wild currency fluctuations make it very difficult for businesses, which are never quite sure if three years down the track they will be selling at a profit or a loss. In my view, the recent slide in our dollar can only be good news. The previous heights of the dollar helped to fuel a consumer boom, which at the end of the day has to be paid for and the books balanced. It’s nice to buy luxuries and cheap cars, but our external balance of payments has to be met. In New Zealand it’s the agricultural and primary production sector that still forms the backbone of the economy, so to keep that sector productive and competitive on the world stage, a low dollar is optimal. A low dollar will also contribute to reducing our ballooning balance of payments deficit by encouraging production over consumption. The successful implentation of “Export Year 2007”, which was negotiated by New Zealand First in its Confidence and Supply Agreement with the Government and which is designed to significantly grow our export sector, will also be aided by a low dollar. New Zealand First’s economic plan is based on three key pillars: the need for a flexible monetary policy, the need to restore New Zealand ownership of key assets, and the need for an innovative and coherent export plan. Low exchange and interest rates are a vital component of this plan. Doug Woolerton MP
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