9 Apr 2015
AUD/NZD at parity not a problem for New Zealand - Capital Economics
FXStreet (Bali) - Paul Dales, Chief Australia & New Zealand Economist at Capital Economics, notes that AUD/NZD at parity wouldn't be a big problem for New Zealand.
Key Quotes
"While a strengthening of the New Zealand dollar to parity against its Australian counterpart would be an important milestone, it would have little adverse economic impact. Indeed, the recent weakening in the trade-weighted index will provide a welcome boost to total export growth and CPI inflation."
Potential for parity "reflects the brighter outlook for New Zealand and expectations of a larger premium of interest rates in New Zealand over those in Australia. With these trends unlikely to change in the near-term, the New Zealand dollar may soon reach parity."
"That said, while exchange rate movements are important for a small, open economy like New Zealand, they are often trumped by changes in demand. In this regard, we have previously highlighted how a weaker Australian economy will weigh heavily on activity in New Zealand. This partly explains why we expect GDP growth in New Zealand to slow from 3.0% last year to below 2.5% this year."
Key Quotes
"While a strengthening of the New Zealand dollar to parity against its Australian counterpart would be an important milestone, it would have little adverse economic impact. Indeed, the recent weakening in the trade-weighted index will provide a welcome boost to total export growth and CPI inflation."
Potential for parity "reflects the brighter outlook for New Zealand and expectations of a larger premium of interest rates in New Zealand over those in Australia. With these trends unlikely to change in the near-term, the New Zealand dollar may soon reach parity."
"That said, while exchange rate movements are important for a small, open economy like New Zealand, they are often trumped by changes in demand. In this regard, we have previously highlighted how a weaker Australian economy will weigh heavily on activity in New Zealand. This partly explains why we expect GDP growth in New Zealand to slow from 3.0% last year to below 2.5% this year."