As the Kiwi dollar edges towards a NZD$1:AUD$1 valuation with Australia there has been a lot of speculation about the effects this may have on our economy (for one example click here to see an interview with Consumer NZ in relation to small businesses). While reaching parity is a hot topic, the fact is that the dollar is comparatively high at current levels and the effects are already being felt regardless of whether it gets over the AUD$1 mark.
There are a number of commentaries and analyses out there discussing the benefits and drawbacks of a high dollar. In general a high dollar is good for importers and bad for exporters. For everyone else it will have no direct effect, although there may be some flow on effects if your industry utilises products or services that are imported or exported.
Being a small country that produces a limited range of products New Zealand has traditionally been a net importer and therefore a higher dollar would be welcomed as a whole. Recently, more emphasis has been placed on our export market which is primarily driven by agricultural products and more recently intellectual property, such as technology licences.
However, the construction industry is primarily the former – a net importer of products. A significant portion of our building products are imported from across the Tasman and accordingly a higher dollar should bring the material costs down (click here to read a previous post on the cost of building materials). Will this lead to cheaper homes? Probably, although any reduction is likely to be small, if noticeable at all. There are two main reasons for this:
- The dollar did not jump overnight. It has crept up over the last few months, and due to the lead time on product orders any cost savings are likely to be levelled out over time rather than a noticeable drop.
- Hedging is commonly used by importers/exporters to provide certainty around currency and this may also smooth out any cost savings
Parity should be no more than a headline event. The currency will continue to fluctuate and even at these high levels (around AUD$0.98 at the time of writing) importers should be relatively happy.
One take away from this is that now is as great time to take that holiday across the ditch.