KEY POINTS:
A string of businesses are preparing to move their operations overseas next year to avoid what's tipped to be another year of currency headaches.
The average forecasts of six strategists polled by nzherald.co.nz expect the New Zealand dollar to trade at around 75US cents in March next year, 73 cents in June and 69 cents by year end. The currency, which reached a record 81 US cents in July, in the past month traded at an average of 76 cents.
According to the Canterbury Manufacturer's Association (CMA) such levels in the currency will leave some exporters no option but to shut up shop and shift offshore next year.
"Basically it will be more of the same where people will be faced essentially with the option of either withdrawing from the markets and see their share eroded, or radically changing their business model and move operations out of New Zealand," CMA chief executive John Walley said.
"I know of at least half a dozen companies looking seriously at shifting" next year.
Mr Walley declined to reveal the identity of these companies except to say they were manufacturers.
The New Zealand dollar has ballooned 49 per cent since 2002, making it the third-best performer of the G-10 currencies after Canada.
The surge in the kiwi dollar against currencies of major trading partners in recent years has dented the sales of exporters, which make up close to a third of the New Zealand economy. Strong commodity prices helped soften the blow.
Household names such as appliance manufacturer Fisher & Paykel Appliances were this year forced to relocate their manufacturing plants to Asia. Listed fishing company Sanford last month blamed the high exchange rate for its net foreign exchange income going into red territory in fiscal 2007.
New Zealand can't afford to have more and more exporters heading for the greener pastures offered overseas, Mr Walley said.
"If the export sector collapses we will all get affected."
"New Zealand will lose its ability to sustain complex supply chains."
New Zealand's high interest rate relative to nations including the US has bolstered demand for assets denominated in the local dollar, which has gained 10 per cent against the US dollar this year. Economic growth will probably underpin the currency for another year, some analysts say.
'We are expecting solid growth in New Zealand in the next year," said Westpac market strategist Michael Gordon, who thinks the New Zealand dollar will reach 81 US cents in June 2008 and 79 cents by December.
"We are starting to see dairy cash coming although and we are expecting to see two more rate hikes from the Reserve Bank next year."
The Reserve Bank of New Zealand kept the official cash rate at a record 8.25 per cent last week on concerns carbon emissions, income tax cuts and strong commodity prices will send inflation above the bank's targeted range. By comparison, the US Federal Reserve is widely expected to cut its benchmark.
"This is relevant to us because the lower United States interest rates go the greater the relative interest rate support for the Kiwi dollar therefore the greater chance we head back rapidly to 80 cents," said BNZ chief economist Tony Alexander, who predicts the local currency will buy 77 US cents by the end of March before dipping to 75 cents in June.
