KEY POINTS:
The dollar is falling again. Is this the big fundamental shift we've all been waiting for?
There have been so many false starts in the past few years that there will be few if any exporters getting excited about this week's decline. But there are a few currency
traders interpreting the drop as more significant than the usual ebb and flow of global money.
Shedding about 4c in just over a week isn't exactly a world-changing fall. But it is noteworthy in a week when the interest rate differential between the US and New Zealand grew even wider.
With the US Federal Reserve cutting its rate to 2 per cent - further increasing the premium that currency traders can get by investing in New Zealand dollars compared to the US currency - the New Zealand dollar would normally get a boost.
The fact that it has fallen is likely due to the subtle language used by governors Bollard and Bernanke.
With an eye on inflation US Federal Reserve governor Ben Bernanke suggested that he may take a pause from cutting rates.
Last week Alan Bollard left the local rate at 8.25 per cent but hinted that time for cuts may be creeping closer.
Most major bank economists are now picking a local rate cut by the end of the year.
So the emphasis in the US has shifted back from stimulating the economy to inflation while in New Zealand it may be about to shift from inflation to stimulating the economy.
Its possible to read that as something of a high tide mark for the local currency.
It has certainly been enough to give carry traders pause for thought.
When the kiwi falls that will be good news for the economy in so far as we rely on exporters to bring in the dosh.
Fonterra's payouts will get even fatter and the rest of the export sector - leaner and meaner than ever after several tough years - will be a lot more profitable.
But what's good for the economy doesn't always feel that good for consumers.
Those export dollars will take a while to flow through to the average punter.
Meanwhile the price of imports will rise, at a time when New Zealanders are already struggling with a rising cost of living.
Some would argue that an increase in the price of imported luxury goods such as big screen TVs isn't a bad thing. It will speed up a rebalancing of the nasty trade deficit.
But a big rise in the price of petrol will be a lot more painful.
At US$120 ($154) a barrel oil prices look ugly from any angle. But a falling kiwi could push the local cost of oil even higher.
There is a buffer of sorts. Oil prices actually fell this week, dropping from that peak near US$120 to as low as US$112 by yesterday afternoon. That's also a side effect of the stronger US dollar, the currency in which oil is traded.
But a steep decline in the value of the kiwi will outweigh that effect. The cost of fuel will rise.
Most pundits are also picking that the barrel price will resume its rise later this year as well.
Demand is easing slightly in the US as the economy slows, but in China and India it continues to grow.
Meanwhile on the supply side the high cost of other commodities such as steel is limiting oil company enthusiasm for new exploration.
Opec president Chakib Khelil warned this week that it might hit US$200 a barrel. Even allowing for the generous dollop of spin you'd expect from Opec, that is hardly reassuring.
High profile US oil investor T. Boone Pickens jnr this week picked the price to rise to US$150.ETS IS INEVITABLE If the net result of a falling kiwi and rising global prices is more pain at the pump then there will no doubt be a growing chorus of calls to delay the Emissions Trading Scheme (ETS).
The ETS debate got serious this week as a couple of major reports made it clear that you can't save the planet for free.
As the reality of paying the price for burning carbon draws near, interest in this issue - which has so far been in the "too hard basket" for most of the mainstream media - will snowball.
But while National and Labour may waver on timing both parties accept that an ETS is inevitable.
So the question those doing the complaining need to ask themselves is what purpose a delay will actually serve. Will a new tax on petrol be any more palatable in 2010? From a political point it may be that a delay simply serves the purpose of shifting the problem out past the election.
Liam Dann is Business Editor of the Herald
