KEY POINTS:
The New Zealand dollar this morning broke a 25-year-old record high against the US dollar - fantastic news for holiday makers but bad news for exporters.
The dollar briefly traded at US74.76c, the highest level it has touched since it became a free floating currency in March 1985. It was floated at US44.44c.
The dollar was last at this level against the US dollar in 1982 when New Zealand ran a so-called crawling peg currency.
The previous post-float high of US74.65c was in March 2005.
At 12.10 it had eased slightly and was trading at US74.64c.
Today's inflation data helped push the kiwi up in frantic trading. Although the Consumer Price Index rise of 0.5 per cent was just below forecasts, analysts said it was high enough to persuade the Reserve Bank to hike interest rates next week.
Rampant inflation and high foreign borrowing in the early 1980s forced authorities to continually devalue the New Zealand dollar from over US82c in 1982 to under US45c just prior to floating the currency.
The kiwi has been bid up because New Zealand has the highest interest rates in the industrialised world and there is a high prospect rates will be raised again next week and again in June.
Reserve Bank Governor Alan Bollard has been struggling to contain inflation, driven by high consumer spending that has been encouraged by seemingly never-ending house price inflation.
Ironically, the rising kiwi has encouraged the consumer spending spree, making thing like cars, computers and cellphones cheaper.
While dairy farmers have been insulated to some degree, many exporters are screaming about an uncompetitive exchange rate and some have been driven to the wall.
Listed fish exporter Sanford yesterday warned of a disappointing first half result largely due to the currency. "The strength of the New Zealand dollar is decimating earnings across all products and resulted in foreign exchange losses," chief executive Eric Barratt said.
Sanford's half year foreign exchange losses would be over $7 million, he said.
Three firms in Christchurch -- GL Bowron, Click Clack and Whisper Gen -- this month announced major layoffs this month, mainly due to export profits being cut due to the high dollar.
Plastic goods manufacturer Click Clack, which announced lay offs of 70 staff, said it had already trimmed 80 positions over three years due to the ongoing high currency.
Chief executive John Heng said other Christchurch firms are poised to lay off staff. They were waiting until those laid off this month have had a chance to find alternative work until they announce their redundancies, he said.
Mr Heng slammed the Government for failing to give the Reserve Bank tools other than the blunt instrument of interest rates to control monetary conditions.
Click Clack said its exports are currently worth about $30m compared to $40m four years ago when the exchange rate was US55c.
The country's largest fund manager, AMP Capital Investors, yesterday estimated the kiwi was overvalued by around 20 per cent. However, AMP Capital head Leo Krippner said he expects the kiwi to go higher until the Reserve Bank stopped saying it was going to hike interest rates,
He did not expect it to reach the US80c predicted by Opposition leader and former foreign exchange trader John Key, but a kiwi above US75 cents was likely.
Mr Krippner said once the rate raising cycle had run its course the "correction was likely to be rapid.
"There's a group of hedge funds looking to pounce on the New Zealand dollar and sell it down," he said.
Until then, exporters such as Sanford, Fisher & Paykel Healthcare and Fisher & Paykel Appliances had to wear the pain. Others, which did their buying in US dollars, or had US debt, such as Air New Zealand, The Warehouse and Sky TV would get windfall gains.
- NZPA, NZHERALD STAFF
