Evidence is growing of an economic slowdown, with the New Zealand dollar yesterday reaching a post-float high of US81c and commentators warning it could exceed US85c by the end of the year.
The export-unfriendly exchange rate adds to the growing evidence of an economic slowdown, with a weakening housing market, slowing retail sales and high interest and exchange rates, combined with a worsening global economic scene.
The currency ended local trading at 5pm yesterday at US80.82c, after trading during the day in a band between US80.62c and US81c. It also ended the day stronger against the Australian dollar, up 0.25c to A87.45c, at €0.5455, up €0.0041, and up 0.33p at 41.10p.
Bank of New Zealand chief economist Tony Alexander said there was no sign of a recession, but he warned business conditions would be tough in the coming year.
The bank is forecasting economic growth of 1.5% this year, compared with 2.7% in the year to September 2007, but for those exporting products other than milk, Mr Alexander said it would be a tough year.
While dairy prices were booming, other producers were not enjoying similar demand or exceptional prices.
High dairy prices have underpinned the exchange rate, but Mr Alexander said sheep and beef prices were expected to improve this year adding to that currency pressure.
These elements underpinned trading yesterday, and Mr Alexander said the currency could come under more pressure during the year as investors gain in confidence and look again at riskier investments such as the kiwi.
He believed the currency would slowly start to track down later in the year, but was unlikely to collapse below US60c because it was underpinned by high interest rates and high commodity prices.
Mr Alexander said the economy faced a slowdown rather than a recession because labour and raw materials resources would remain in tight supply, adding to pressure on businesses, even though economic conditions were similar to those preceding the 1998 recession.
‘‘It's not as if we are looking at slowing growth therefore rising unemployment,'' he said.
In 1997, there had been a sustained period of economic growth, home owners were stretched economically leading to softening house prices and declining consumer confidence.
Eventually, the Asian crisis and drought plunged the economy into recession.
There was gloom over the US subprime crisis, drought affecting farming in parts of the country and low hydro lake storage levels, but commodity prices remained high and the Australian economy, that of a key trading partner, remained buoyant, he said.
