Currency 'head wind' more like a gale

Thursday 2 June 2011, 9:06AM

The Government and the Reserve Bank cannot continue to sit and watch as the currency appreciates say the New Zealand Manufacturers and Exporters Association (NZMEA). Any credible export based economic plan must deal with a persistently overvalued and volatile currency.

NZMEA Chief Executive John Walley says, “Over the past few days we have heard Bill English describe the exchange rate as a ‘head wind’ and John Key describe the reason for the rise as ‘inherent weakness in the US’. These comments underestimate the extent and scope of the problem.”

“This graph of the Trade Weighted Index over the past three weeks shows that it is not just a US dollar story. The New Zealand dollar has in fact been rising against almost all major currencies.”

“This graph going back much further indicates that exchange rate volatility has been a New Zealand story for some time, and the overvaluation problem has existed since about 2004. Is it any surprise that growth in the tradable sector stopped at the same time?”

“For exporters outside of commodities, those adding value to commodity exports and those making differentiated products, these currency levels are completely unsustainable. Inaction will cost growth and jobs.”