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Powerful NZ dollar heads toward Oz parity and beyond

March 17, 2014 Destination Global, Headline News No Comments Email Email

egtmedia59New Zealand’s steadily rising dollar is tipped to reach parity with the Australian dollar within six months and then overtake it for the first time in 40 years, economists at HSBC say.

For Australians travelling the Tasman, it will mean the end of looking at credit card statements on returning home and being pleasantly surprised. Instead, the surprise could turn into a sting.

The value of the Aussie unit has sagged since the Australian government changed in 2013, while the New Zealand dollar continues to rise relentlessly. A year ago, it took less than 80 Australian cents to buy a Kiwi dollar. It now takes almost 95 Australian cents. To put it the other way around, a year ago, one Australian dollar bought about NZD 1.26. Today, one Australian dollar buys just NZD 1.06.Dollar Muscle

New Zealand is historically Australia’s biggest tourism source, having been overtaken by China only in the past 12 months. Australia will become more of a bargain for travelling Kiwis.

The New Zealand dollar – or Kiwi as it is known – is one of the 10 most-traded currencies in the world. Paul Bloxham, chief economist for Australia and New Zealand at HSBC, told CNBC’s Asia Squawk Box that the Kiwi could surge over 8% against the Australian dollar this year, as the NZ central bank aggressively hikes interest rates.

The NZD is unlikely to reach the level it maintained after it was launched in 1967, when it was pegged at USD 1.43, making the Kiwi the highest-value dollar in the world at that time.

New Zealand’s soaring “rockstar economy” is expected to outpace Australia this year. Although it doesn’t have Australia’s minerals, New Zealand does well in the services sector (tourism, for instance) and in exports from its highly efficient agricultural sector. If differs from Australia in many export aspects – for instance New Zealand banned exporting livestock for slaughter in 2007.

Little known fact: crude oil is New Zealand’s fourth-largest export commodity.

HSBC forecasts economic growth in New Zealand of 3.4%, its fastest pace since 2007, with increased spend on building following the 2011 Christchurch earthquake, plus a housing boom and rising dairy prices. Growth is likely to outstrip Australia by about 0.5%, consensus forecasts say.

The Australian dollar recently hit a five-year low of USD 0.87, down from its USD 1.05 peak in April. The fall reflects a worsening economic outlook as growth cools in China.

For tourism to Australia, a lower Australian dollar is good. It will help airlines by encouraging inbound tourism, which spurs consequent use of domestic flights, though it pushes up costs because jet fuel is priced in US dollars, which can feed through to higher fares.

Written by Peter Needham

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