What does NZ's 'plunging' dollar mean?

Dominick Stephens (3 News)
Dominick Stephens (3 News)

The dollar has plunged to lows not seen in six years.

It is now hovering around 65 US cents and doesn't look like bouncing back for some time.

"We've had a major drop in commodity prices of all kinds, especially dairy, and the New Zealand domestic economy looks to be slowing," says Westpac chief economist Dominick Stephens.

"Our out performance, relative to the rest of the world, has been extinguished and the New Zealand dollar's dropped sharply."

Just one year ago the Kiwi was at 88 US cents.

It skid to 65 US cents this week on low dairy prices, soft inflation figures and fading business confidence.

If you have memories of cheap petrol, put them in the scrapbook.

"Two dollars a litre petrol is something to forget for the time being," says Mr Stephens. "Global oil prices have bounced from $40 to $60 a barrel, but more importantly the plunging New Zealand dollar has led to a lift in petrol prices."

Kiwis can expect to pay more in the shops for imported goods like clothes and shoes, and they are already feeling the pinch online.

"If you go online to buy things from overseas you're often going to be purchasing those items in US dollars… the number of New Zealand dollars you have to pay for each US dollar just went up," says Mr Stephens.

It is not all doom and gloom. The tourism industry expects a lot more visitors, and exporters like Snowy Peak in Christchurch are feeling warm and snug about their knitwear.

"It gives us an option to either price more keenly or to take a bigger margin," says Snow Peak founder Peri Drysdale. "Depending on what we've got going on what markets, we've then got some different weapons that we can do, so it's great."

Overall the dropping dollar is eroding consumer and business confidence, something that might push interest rates down.

3 News