Eighty Plus

The New Zealand dollar broke through the 80 US cent mark last night, and today it passed 81 US cents, with no immediate signs of stabilisation. Over the past year, the NZ dollar has risen 31 percent against the US dollar and 34 percent against the Japanese Yen.

Finance Minister Michael Cullen blames most of this increase on a weak US dollar, which is low against many world currencies. But constant increases to interest rates by the Reserve Bank of New Zealand haven’t helped matters any. New Zealand now has the highest interest rates in the developed world, expected to hit 8.25 percent this week. Home mortgage rates are usually up to a couple points above that, though most New Zealanders have fixed-rate mortgages which are closer to the official rate (for example, on bank today is offering fixed rate mortgages at between 8.9 and 9.3 percent, depending on terms; floating rate are around 10.25 percent).

At the moment, this mostly hurts exporters, since most home mortgages won’t be going off fixed rates for a few more months at least. Also, the effects have been eased by record-high prices for farm produce, especially dairy products, which have meant increased income for farmers, despite the rising Kiwi dollar.

It’s long been predicted that the Kiwi would pass the 80 US cent mark. My prediction is that it’ll hit 90 to 95 US cents before it levels off and declines, unless either the US dollar suddenly regains strength or there’s a change in NZ monetary policy.

But failing that, it would be nice if stores and oil companies passed on their savings to us consumers, especially since so many of us will soon be paying a bit more on our mortgage payments. I’m not holding my breath.