The PM has basked in the glow of approving publicity overseas – but the dollar’s dive should bring her back to earth

Prime Minister Jacinda  Ardern  has won lots of favourable publicity, while attending  the  Queen’s funeral  in London and the  UN  General   Assembly  in  New York.

It was  a  sombre  mission  in  London,  less  so  but  no  less  tiring in  New  York  (although the nuclear threat from Russia was sobering).

On  both  occasions, Ardern has represented  the country so  outstandingly  that  New  Zealanders  for  a week  or  two  might have  overlooked  how   poorly   the government  has  been performing  at  home.

Indeed,  one  commentator – Matthew  Hooton  in  the  NZ  Herald –  suggested that if  NZ  became  a  republic  he  would back  Jacinda  Ardern  for president.

Nobody,  he says, better  personifies  contemporary  New  Zealand globally and  in  national celebration or  grief.

Kiwi dollar’s slippage brings Robertson’s “robust economy” rhetoric into doubt

Just   as   New  Zealanders start  planning  their first overseas  travel  since Covid  led  to  lockdowns,  they  find their dollar  has  slipped  in  value  against  other  major  currencies.

This could   be  of  particular concern  for  those  senior  citizens  who  were looking  forward to having  a  break during  New Zealand’s  winter  months  in the  sunshine   of Australia’s  Gold  Coast.

The  irony  of  the fall in  the  value  of  the  NZ  dollar is  its  contrast  with Finance  Minister Grant Robertson’s  insistence  that  the  NZ economy  has performed  strongly  (under  his  guidance) through  the  pandemic.

On  that  point some  authorities  have noted the  NZ  dollar has  lost  ground in  comparison  with  Australia, even though  NZ  has  higher  interest rates   than  Australia.

But if  Kiwis  think  the  beaches in  Hawaii might  offer  better  value  for their dollar than those  of  Queensland,  they  will have to think  again,  because the  NZ  dollar  has slipped  also  against the  greenback.

There is a further message in the  comparison   with  the  AUD.  It implies  financial markets have  concluded   that  the  Australian  economy is  more  productive  than  NZ’s.

The  positive   to  be  drawn  from the  currency  movement  is  that   NZ’s  export  sector  will  have  higher  returns, (in local dollar  terms). The  dairy  industry  may  find it  offsets  the  lower  prices  recorded in the  fortnightly  Fonterra GDT  auctions, if  the  fall against the  US  dollar  to  below 65USc  is  sustained.

On  the  other  hand industrial commodities  have  been  falling  sharply:  this  movement  means  that returns  for aluminium  (from  the  Bluff  smelter) and  methanol   (from the Motunui  plant) will be  lower.

Global dairy prices rise, hurrah – but so did the Kiwi dollar, and farm costs are climbing, too

At    first  blush,  there  might have been  some  cheering   in  the  cowsheds  at results  from the  latest Fonterra Global Dairy Trade  auction, with  prices up by  an  average 2.2%.  But the ebullience would have  become  more subdued as  the  reality  sank in  that the  rise in the  NZ   dollar  against the  greenback  meant the price slipped  by  0.5%  in  local  currency  terms. Moreover,  with  costs rising  on  the  farm,  maybe  there  wasn’t  anything  to  cheer  about.

Perhaps   the  only  ray  of  light  has been  Fonterra’s  decision to  offer  smaller  amounts  of  WMP on the  auction  platform  because of  strong  contract demand   in  conjunction with the  expectation  this  season  of  flat  milk supply.

And  the    auction   showed demand is highest for food-service commodities, with butter up 4.7%, cheese up 2.9%, and SMP up 2.5%.

Still,  the average price for WMP  in  lifting 1.5% to an average US$3803 (NZ$5305) a tonne is now 25% higher than at the same time last year.

Spending power is shrinking while govt rearranges the microeconomic deckchairs

Notice  the  pay  packet  doesn’t  go  quite as far as  it  did, say, six months  months ago?

And if this be the case, is it  just because the  price of petrol  has  surged  skywards?

Back in  March the national price  of petrol was around $2.08 a litre for  91 octane. Now  it’s  about  $2.40 a litre,  probably  more in Auckland  where the regional  fuel  tax  of  11.5c  litre  was applied in  July.

It’s  not surprising  the  cost of petrol  has  moved up  sharply. Statistics  NZ  reported  that in the June 2018 quarter, higher prices for imported crude oil increased the costs paid by the petroleum and coal product manufacturing industry (up 11.3 %).

Falling exchange rate is good for some, but the Govt’s supporters are feeling the squeeze

New Zealand’s currency has fallen around 11%  against the US  dollar  since  mid-April. Business confidence has slid  even more sharply.

But the  PM, Jacinda Ardern, is looking on the bright side.  She thinks the  lower NZ  dollar  is good  for  exporters and a  sign  the economy is heading in a  more productive  direction.

As  for  business confidence, her economic ministers dismiss the surveys either  as  “junk” or  an  “over-reaction”.  They  argue  the  economy is growing, wages  are  rising and  the government’s families package is  fiscally  stimulatory.

But is  the  economy, as the PM says, really heading  in a  more productive direction? 

Big Macs and BMI – getting the measure of our economic health

Watch  your  BMI,  London’s  The Economist  advised last week as it updated  its  Big Mac index—what it  calls its lighthearted  guide  to  currency  valuation.

For  NZ   this has  special  meaning,  because  since  January  the  NZ   dollar  has  moved  from  being  17%    to   23%  undervalued, according to the  BMI.

The Big Mac index, invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level, is based on the theory of purchasing-power parity (PPP).