Kiwi dollar troubled by Greek debt

Photo / NZ Herald

Greece's debt problems and the potential for them to spread to other European nations is likely to send the New Zealand dollar on a volatile ride and leave exporters facing a difficult European trading market, market commentators say.

BNZ currency strategist Mike Jones said the kiwi was a growth sensitive currency that got hit when investors became nervous.

"Any further deterioration [in Greece's debt problems] is likely to drag the New Zealand dollar lower [against the US dollar], particularly as it has been moving stronger in the last week and there is room for a correction."

While that was good news for exporters dealing in the US dollar it could make things a lot tougher for businesses exporting to Europe.

Jones said businesses that exported to Europe faced a double-whammy as the weaker euro would make it more expensive to buy New Zealand products and lower consumer confidence was also likely to hit demand.

"Exporters who are exposed to Europe will have to deal with [the dollar] being higher, probably for the rest of this year," he predicted.

ASB Bank economist Chris Tennent-Brown said Greece's problems were not likely to have big effect on New Zealand. "The problem for Europe is the instability it is causing to their financial system. As it gets worse the euro could get extremely weak against the New Zealand dollar."

The New Zealand dollar is already buying around €0.56c. "For a person going on holiday to Europe it's great news. For exporters to Europe it makes it harder."

Tennent-Brown said the concern was the problems would spread to Britain, which does have strong trading history with New Zealand.

"For us the problem is really to do with Europe as a broader trading relationship. The thing that is concerning is just how weak the UK economy is looking and they are a major trading partner."

New Zealand was lucky the negative situation in Europe was being offset by growth in China and Australia - our biggest trading partners.

But New Zealand had traditional ties with Europe and it could have ramifications for other parts of the sector, such as tourism, he said.