KEY POINTS:
It was the best of times, it was the worst of times. As the anguished cries of New Zealand exporters start to fade, the chorus of complaints from the other side of the room rises in volume.
This other side of the economy - in the shops and at the fuel pumps - is now being hit by last week's plunge in the value of the kiwi dollar.
On Thursday, the kiwi plunged US3c in its biggest one-day fall for 21 years. It closed on Friday at US67.15c, the lowest close this year and since November, and was trading at US69.55 yesterday morning. About three weeks ago the NZ dollar was at a post-float high above US81c.
Some $2.5 billion of NZ dollar denominated bonds mature this week, expected to put further pressure on the currency. These bonds are issued to retail investors, particularly in Japan, and give them exposure to our high interest rates.
The squeeze comes after a dramatic week that illustrates "up by the stairs and down by the elevator".
"I guess it's a bit like a rubber band. Once you start stretching things to extreme levels... they ping back quickly," says BNZ currency strategist Danica Hampton. "It's got to extreme levels, it wasn't just over-valued or just high - it was extremely high.
"So I guess the risk is that the higher it goes on one side the higher it will ping back."
At one stage "every man and his dog" was selling Japanese yen and investing in high-yielding currencies such as the kiwi dollar.
"Then, all of a sudden, they decided to exit those positions, so it's kind of like a herd of cows rushing out of a narrow shed gate," says Hampton.
"You get to the point where they've got some healthy profits, and start to feel a little bit of shaky data or some rising risk aversion in global credit markets, and everyone's quick to lock in those profits.
"At the same time everyone is exiting. They all got in at different times, but everyone's trying to exit at the same time."
Importers Institute secretary Daniel Silva says a currency drop of 17 per cent in a week could not simply be absorbed by importers - there were few cases of importers earning "super-profits" when the New Zealand dollar was very high recently.
This is because an open market means importers are operating in a competitive environment, so keeping prices high will mean losing market share to rivals.
Travel and fuel prices should increase quickly, says Silva, but the real impact of the low dollar should be felt next Christmas. Much of the stock needed for this Christmas is arriving in New Zealand now, and importers are also making pricing decisions about next year's stock. Silva says anyone considering buying big-ticket imported items should buy now.
UBS Investment Bank senior economist Robin Clements says if the dollar stays below US70c petrol prices could rise by 5 per cent. "It depends if the decline is sustained. If it does stick, probably the first thing we will see is a rise in petrol prices."
But increases are unlikely to be as steep as those of this time last year, when the dollar was less than US62c and 91-octane peaked at $1.75 a litre.
Shell New Zealand spokeswoman Jackie Maitland said the price of crude oil was "at a similar level to what it was 12 months ago".
However, this time last year, the average pump price was about 20 cents a litre higher than now, which showed how a stronger kiwi dollar had insulated NZ from world oil prices.
Maitland says about half of the pump price paid by Kiwi motorists is related to purchases made in US dollars, so was directly influenced by the strength of the kiwi dollar.
A demonstration of how much the dollar can make a difference to exporters can be seen in last week's profit figures from NZX technology darling Rakon, which makes crystals and oscillators for frequency control and timing devices.
Net profits for the past year were up 122 per cent to $10.6 million. But the previous forecasted trading profit of between $32m and $38m for this year had been based on an average exchange rate of 70c to the US dollar.
A 1c movement in the exchange rate could impact full-year trading profit by about $1.5m.
If the kiwi dollar stays at around 76c - which was earlier this month - then trading profit is forecast to fall to between $27m and $32m.
Don Nicolson, Federated Farmers' vice-president, says the falling dollar gives welcome breathing space, but won't be enough to fix some of the woes affecting the meat industry.
"The exchange rate dropping, while it will help, shouldn't be considered the fix the industry needs," he says. "It's not going to be an enduring solution, it's going to give us some breathing space."
He says Federate Farmers is tired of criticism a very high dairy payout is bad for NZ and inflationary.
"We should celebrate the success of farming regardless of which sector it is," he says. "And make sure the farmers first of all get the benefits and the community around them get the spending from that.
"We shouldn't rely on the Government to spend so much in the economy that it creates demand. We should be relying on investment of real people to create demand."
New Zealand Manufacturers and Exporters Association (MEA) chief executive John Walley says it's important to remember that until recently 69 US cents was considered a high rate for the dollar. He says: "69 cents is of course much better than 81, but nothing like as good as 60. Many need maybe a three, or four-year period of it being sub-60c to build back the fat that has been used up.
"The damage, more than anything, has been psychological. People are saying what was it that did that?
"How much of it was the slings and arrows of the global economy? And how much was our internal policy settings?"
A number are coming to the conclusion the policy settings are creating "a two economies problem, where one half of the businesses suffered while the other half enjoyed boom times".
Walley says: "It's like the broken watch that is right twice a day. We've got an economy that's right twice - when one passes the other on the way up, or the way down."
When one part of the economy enjoys booming times, the other is languishing badly. Government has pulled a trick by convincing everyone the exchange rate problems are not of its doing, caused by forces outside its control. "Bullshit - this is an outcome of policy and Government should be held to account. It is decimating and will continue to decimate manufacturing in NZ."
- Additional reporting by NZPA
