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Bill English says dollar 'unsustainably high', out of line with commodity prices

Finance Minister Bill English said the New Zealand dollar, which hit a record on a trade-weighted basis this year, is "unsustainably high".

"I share the same view as pretty well anyone who looks at the New Zealand currency and says it's unsustainably high," English told BusinessDesk on the sidelines of a Trans-Tasman Business Circle lunch in Wellington. "Almost anyone who has looked at it comes to the conclusion it's somewhere 10 to 15 percent overvalued."

The New Zealand dollar has been hovering near its post-float high of 88.40 US cents before weakening last week on slower inflation figures and a fall in dairy prices. The kiwi has gained about 6 percent so far this year, recently trading at 86.74 US cents, as a revival in the local economy pushes up interest rates. Reserve Bank governor Graeme Wheeler is expected to hike the rate tomorrow for the fourth time this year, taking the benchmark to 3.5 percent and increasing the lure of the currency at a time when other major economies have their rates at record lows.

English said the currency appeared to be "out of line" with commodity prices. "I just observe that historical correlation, and it looks a bit high."

Still, he said New Zealand exporters had developed resilience because of the high currency.

"New Zealand is actually in reasonably good shape," English said. "We have had an export sector running at an 85 cent dollar now for five or six years and that has generated an enormous amount of shaking out in pretty much any business you can think of. It's a strong headwind for them and it is pushing more of them to do more."

"I've been pleased to see how many of the companies though are just getting on with that, rather than sitting there paralysed with something they can't change," he said.


Comments and questions

Come on Bill stop uttering silly statements. We all know its high but if it was unattainably high surely it would have dropped by now. Golly I gambled two years ago on it being too high by buying USD, and still waiting for the drop. And Mr Wheeler is set to compound the problem tomorrow. It appears every with a mortgage is fair target for Mr Wheeler whist NZ with a population of 4+ million has the highest OCR in the developed world. The problem being Wheeler put himself into the position of raising the rate tomorrow when he last did the same, now to pull out would make his earlier prediction wrong, and Mr Wheeler does not want to be wrong.

Agree. Silly statement really. Bill and Wheeler seem to be hell-bent on wrecking what we have. Obscene really when all the indicators point to common-sense requirements being something completely different.

Short memory Bill. The NZ dollar was worth more than a US dollar once.

Not so. The New Zealand pound was worth more than the US dollar.

If 95% of the currency transactions were not speculative then we might see a little more stability in the dollar.
Our little country with small GDP will always be sensitive hence the erratic fluctuations of large proportions.
We all still need to back ourselves against the other currencies as we are in a good space and they are nowhere even close.
Our exporters need to stand proud and let the customer stump up for superior and in demand product rather than us (NZ) having to discount further to keep everyone happy.

We were borrowing a billion dollars a month to keep up the transfer payments. Has that now stopped?

Strange I never hear Bill proclaiming that kiwis should just get used to paying more for cars, TV's and all the other stuff that makes us feel we are part of the developed world.

If National was serious about controlling house prices, then the Reserve Bank would not have to put up interest rates.