Strong dollar ‘wipes out’ devaluation benefits

Press, 25 July 1985, Page 39

Strong dollar ‘wipes out’ devaluation benefits

PA Wellington The strong New Zealand dollar has all but wiped out the benefits of last year’s devaluation for exporters to Australia, said the vicepresident of the Manufacturers’ Federation, Mr Keith Tyrrell. While the New Zealand currency was valued marginally more than it was at the time of devaluing at about US5Oc, the Australian dollar had been pegged back from around USB3c to US7Oc in the same period. This meant that the two currencies were valued much the same one against the other as they were a year ago. “It’s probably costing manufacturers in the short term,” Mr Tyrrell said. Prices made on the basis of a weaker New Zealand dollar meant some manufacturers were selling at a loss on the present rate of exchange.

The strength of the New Zealand dollar was attractive for importers who could buy more from overseas with fewer New Zealand dollars. Mr Tyrrell doubted, however, that there would be much relief from the sharp increase in imported raw material prices experienced at the time of the 20 per cent devaluation a year ago. The president of the Export Institute, Mr John Lister, agreed that a significant drop in import prices was unlikely, but said that there were some advantages in a stronger local currency for New Zealand exporters. Marketing and other overseas market development costs had increased 25 per cent because of the devaluation. The present revaluation would correct that to some extent, he said. Furthermore, he believed many exporters had got

wise to the wide fluctuations in smaller currencies like the Australian and New Zealand dollars. His own company, Wattie Industries, had moved swiftly to deal in the more stable American dollar for export deals, he said. Exporters were also making greater use of the forward exchange market — which allows a guaranteed price to be struck no matter what happens to exchange rates in the meantime. In addition, exchange rate fluctuations mattered a lot only for products which could be sourced from other countries. Many New Zealand exporters were selling into specialty markets where the product rather than the price was the important factor. The Australian market was, however, probably now the hardest to negotiate, Mr Lister said.