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Australian / New Zealand dollar 'parity party' approaches

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Prime Minister John Key says there is little the Government can do about the New Zealand dollar reaching parity with the Australian dollar.

Exporters are hurting and holiday-makers celebrating as the Kiwi closes in A$1, having reached a record post-float high of A99.78c on Monday.

The currency is within spitting distance of breaking even with the Australian dollar for the first time since 1974, when exchange rates were government-controlled.

The Australian dollar has not traded below parity with New Zealand for more than 40 years.

With the Reserve Bank of Australia (RBA) poised to cut interest rates, the "parity party" could kick off as early as Tuesday afternoon.

Speaking to Radio New Zealand, Key said the high dollar was partly a reflection of the strong New Zealand economy, and exporters had accepted there was "very little" the Government or Reserve Bank could do about it.

While lowering the official cash rate would take some heat out of the currency, Key said that did not always follow.

"In the end the [Reserve Bank] Governor will assess what he thinks the right level is; at the moment he thinks the right level is 3.5 per cent."

Key said the strong currency was a two-way street, and some manufacturers had benefited from lower costs of imported components.

"It's certainly tough on our exporters, but they've been amazingly resilient, and they're very constructive at finding ways to cut costs and drive innovation," he said.

The Kiwi's boosted buying power means chocolate lovers, Holden fans, and those who enjoy a glass of Aussie red all stand to benefit, with more than $6 billion worth of Australian goods imported across the Tasman each year.

According to Statistics New Zealand, New Zealand imports $319 million worth of cars, $199m of wheat, $190m of medicines, and $143m of chocolate from Australia each year.

Other major imports include pet food, bread, cakes and biscuits, trucks and vans, computers, wine, books, and cleaning products.

Travellers heading to the Gold Coast to lap up the sun or to Melbourne to watch the cricket are also seeing their dollars stretch much further.

Flight Centre NZ's general manager of product Simon McKearney said there had been a big increase in travel across the ditch, with February bookings up by a quarter on last year, and Melbourne in particular up almost 40 per cent.

Once on the ground, some visitors were deciding to stay for longer, opt for classier accommodation, or treat themselves to something special, he said.

House of Travel communications manager Jo Wedlock said holiday travel bookings to Australia were up 10.3 per cent in 2014 compared to 2013, which was nearly double the previous year's increase.

The growth could be attributed to the strengthening New Zealand dollar, she said.

With the current rate hovering close to parity, she predicted there could be up to a 7 per cent increase in travel across the ditch this year.

"Flights, accommodation and activities for our favourite Australian destinations such as Sydney, Melbourne and the Gold Coast are all more affordable than ever, and the closing gap with the dollar appears to be making travel there even more attractive."

On the other side of the coin, local operators are not looking forward to parity.

Tourism Industry Association chief executive Chris Roberts said Australian tourists were the backbone of the local market, accounting for almost half of all visitors.

While spending was on the decline, the number of Australians visiting was actually climbing, he said.

"They're almost certainly spending as much, if not more, in Australian dollars, but those are not converting into as many New Zealand dollars," he said.

Exporters are also struggling, with the Kiwi flying high not just against the Australian dollar but most major currencies, including the Euro.

Christchurch-based engineering firm Wyma exports 25 per cent of its post-harvest equipment to Australia.

Managing director Andrew Barclay said the manufacturing industry was struggling with high costs including rent, wages, materials and the cost of living.

"At the moment we have everything against us," he said. "We won't be able to continue if the exchange rates stay where they are."

Sales would inevitably drop off if the situation did not correct itself, Barclay said.

"Companies are telling us they like our gear, they want to buy it, but it's so expensive they're prepared to pay local people to copy it, to get the cost down."

The Australian dollar's decline is partly being driven by a fall in the price of iron ore, the country's key export.

While the weakness in the economy means the RBA is expected to cut the cash rate from 2.25 per cent to 2 per cent, the New Zealand cash rate is firmly on hold at 3.5 per cent.

Tim Kelleher, ASB's head of institutional foreign exchange sales, said if the RBA cut rates, it was hard to see parity not being reached.

Westpac senior market strategist Imre Speizer said reaching parity was "easily doable", especially if the RBA opened the door to more rate cuts to come.

Real Estate Investar Editor
Real Estate Investar Editor
Real Estate Investar provides intelligent software, tools and data to help you save time and make money in the residential property investment market.

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