Exporters sweat over rampant kiwi

The dollar scaled fresh post-float highs against the currencies of major trading partners including Australia yesterday, further confounding exporters' hopes.

The kiwi shot a cent higher against the US dollar in offshore trade early in the day, peaking at a one-month high of 70.72USc.

Currency dealers said the move resulted from what was likely to be a short-lived technical stumble by the greenback. But the kiwi also gained against other key currencies, hitting a 10-year high against the aussie just short of 95Ac before cracking 95Ac last night, and an eight-year high against the yen of 83.72.

That took the trade-weighted index (TWI), which measures the kiwi against the currencies of New Zealand's five main trading partners, to a post-float high of 73, leaving exporters sweating.

"It's a huge problem," said Jen Scoular, group treasurer of kiwifruit exporter Zespri, which is now shipping the last of the season's crop.

"The strong dollar is really hurting. We're not the only one, every exporter is in the same situation."

Zespri expects to rack up nearly $1 billion in sales this year and, with 35 per cent of its exports going to Japan, the level of the kiwi-yen cross was a "huge concern". It meant growers received about 70c or 10 per cent less a tray of fruit this year.

Gallagher Group chief financial officer Geoff Copstick said: "No exporter is going to be comfortable at these sorts of levels."

The Australian market made up about $35 million a year of Gallagher's business.

"This could stay stronger for longer but we can survive it. I don't say we're doing brilliantly well and we'd love it to be a lot lower but it's not going to stop Gallagher Group ... adjust is basically your motto."

He said Gallagher could even be said to be "thriving in these tough times compared with competitors".

"We're importers as well as exporters. While we moan about the aussie, we absolutely applaud the fact that we're now buying 83 yen, and we buy a lot of gear in yen."

Currency dealers said the kiwi's spike against the greenback was unlikely to herald a sustained move higher.

Deutsche Bank currency strategist John Horner said the move reflected "broad-based US dollar weakness" which was, in turn, down to technical issues rather than any reversal of the greenback's firmer trend.

"There was nothing really behind it," said ANZ dealer Mark Elliott.

"The guts of it was the market was long in US dollars across the board looking for a big trend continuation and everyone was caught wrong-footed."

Nevertheless, he warned the kiwi could potentially find fresh support above 70USc.

"If the kiwi broke through 71USc that would be significant. If London comes in and takes it up again, we're going to get probably a big move to the top side."

Meanwhile, Elliott said the kiwi's ongoing strength against the aussie and yen appeared uncharacteristic.

"For economic reasons everyone's saying it shouldn't be up here.

"Historically, you look back over the last 20 years [and] every time it's got near this 95Ac area it's backed off quite sharply but, at this point, it's not showing any signs of doing so and it's that yield differential that seems to be the main driver."

Australia's official short-term interest rate is at 5.5 per cent, compared with New Zealand's 7 per cent. But the Reserve Bank is widely expected to increase that to 7.25 per cent next week.

Japanese investors are still keenly seeking New Zealand and Australian-denominated assets by way of uridashi bonds. With New Zealand offering a more attractive return, those investors are continuing to favour the kiwi over the aussie, which is a big factor in its strength.

Tallying the cost

* The kiwi/aussie cross hit a post-float high of A95.03Ac last night.

* Australia is New Zealand's largest market, with exports worth $6.6 billion in the 12 months to October.

* Next is the US, with exports worth $4.3 billion.

* Japan is third, with $3.3 billion.