Kiwis get set for parity party

By Leith van Onselen

New Zealand Prime Minister, John Key, has implored Kiwis to celebrate the New Zealand dollar’s impending parity with the Australian dollar, which is expected to occur later today in the event that the Reserve Bank of Australia cuts the official cash rate to 2.0% (see below chart).

ScreenHunter_6887 Apr. 07 08.56


Key told Paul Henry a parity party was a sign of New Zealand’s economic success and he downplayed the impact on exporters. Australia is the largest export market for New Zealand manufacturing exporters.

“In a lot of ways, it’s a point of celebration because it shows our economy is doing well,” Key said.

“It’s a double edged sword. For exporters, they also often have an imported component. I do think it’s a sign of confidence in New Zealand”…

New Zealand First leader, Winston Peters, is less impressed, however, warning that the New Zealand dollar’s appreciation is gutting tradable industries in the regions and diverting growth towards the big cities, particularly Auckland.

The Reserve Bank of New Zealand (RBNZ) has also been actively warning against the New Zealand dollar’s rise, last month noting the following in its Statement on Monetary Policy:

On a trade-weighted basis, the New Zealand dollar remains unjustifiably high and unsustainable in terms of New Zealand’s long-term economic fundamentals. A substantial downward correction in the real exchange rate is needed to put New Zealand’s external accounts on a more sustainable footing.

In all honesty, Prime Minister Key’s parity comments amount to nothing more than a pissing contest with Australia. He should be talking down the New Zealand Dollar, as the RBNZ has done, rather than egging on its rise, which risks gutting New Zealand’s tradable industries, just like it did to Australia’s.

Parity is no cause for celebration.

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  1. And where would the $NZ be if we had the same OCR as Australia ?

    RBNZ has the OCR at 3.50% … in large measure because of real concerns about the out of control Auckland housing inflation …

    Official Cash Rate (OCR) decisions and current rate

    … something the Key led Government has been exceedingly slow to deal with. The Housing Accords … with Auckland and others … have no guts in them.

    So it is the NZ exporters who are being hammered … and Mr Key thinks this is a good reason for a “parity party.” ?

    What planet is Mr Key on ?

  2. Oh but the EGO will make the head bleed…Now where have we seen this story play out before… good thing they don’t make cars;)

    • truthisfashionable

      Brilliant idea, I wonder if they have a Ubank equivalent?

      Just remember most of their banks are our banks and the risks across both countries now weigh on these same banks….

    • I suspect the time to do that was about a year ago. I am kicking myself for not doing it but then I already have my fair share invested there.

      • I was going to to do a few months back but lost track of time, honestly i just want something that hold cash that i plan to use before i use it.

    • Kiwi banks have no deposit insurance or government guarantee and under our Open Bank Resolution policy deposits will take a haircut when our housing bubble bursts!

      • None at all? wow.

        Is that even for the Kiwis?

        If i did it i wouldnt use a kiwi bank owned by a aussie Big 4 anyawy.

      • The big four Aussie banks are 90% of the NZ market.
        The OBR is a RBNZ policy so covers all banks.
        The problems are systemic when she blows no banks will be safe.
        Once the haircuts are taken the remaining deposits are government guaranteed to prevent a run.

    • “Ok, Just bought some NZD. Let’s see if this pays off.”
      Could be a bit late in the day — the Kiwi could fall at ANY time — – – good luck. Playing currencies is fraught — think about the yellow stuff that they can’t print.

  3. We were told how lucky Australia was to have a high currency. Didn’t work out so well.

    It’s a great chuckle watching kiwis now calling for a low currency. Next they will be calling for lower interest rates. Where is Janet when you need her ?

  4. during a period between bubble burst in Australia and bubble burst in New Zealand it’s quite likely for Auckland to record much higher house prices than Sydney (Sydney down 50%, Auckland up 25%, exchange rate down 20%)

    BTW. of course, it will happen because of chronic shortage, income growth, low interest rates, dual income households, foreign buyers, and all the other “fundamentals”

  5. My parents are back in NZ. Now would be a good time for that inheritance to come through Mum & Dad!