sign uplog in
Want to go ad-free? Find out how, here.

Roger J Kerr wonders if New Zealand's perceived agility will enable an earlier economic recovery for us

Roger J Kerr wonders if New Zealand's perceived agility will enable an earlier economic recovery for us

As large parts of the New Zealand economy are largely successfully transferred into a “pause” mode, the debate now rightly turns to “how do we get out of this situation?”

If New Zealand business folk are as agile and nimble as we say we are, we will find a way to re-boot ourselves in innovative ways in the changed global economic environment.

There has to be confidence in our capacity to adapt more quickly than other economies. Our economic livelihood from here sort of depends on whether we are smart enough to have a first mover advantage in the industry areas we have a competitive advantage.

It has certainly become apparent in our reaction to this health and economic shock-wave that there is a re-emerging recognition that our economy remains based on the export of trusted and quality natural foods and fibre.

Agricultural science and the rate of grass growth have always been the cornerstone of our economy, and arguably always will be.

The challenge from here is to add more value and brand marketing to the agriculture and horticulture commodities we export to meet the demand of global consumers who will now be even more discerning about the source and safety of what they are buying/eating.

The immediate question to the opportunity to ramp up food production volumes (once we come out of shutdown) is whether we have a local workforce prepared to change to the physical demands of picking apples, pruning vines and milking cows.

If the money and conditions are right for the physically labouring jobs in the provinces, there is no reason why a previous “social media influencer” in the gig economy will not make the change out of financial necessity.

It will be interesting to observe over coming months whether we are as adaptable and flexible in this area of regional labour migration as we will need to be. The onus will be on the food production business owners and managers to make the jobs sufficiently attractive to encourage workers previously at a keyboard or serving foreign tourists.

It will require strong leadership from the business community to recognise the new opportunities and get the backing of investors and regulators to make it happen.

We have witnessed strong economic/financial leadership (after a slow start) from the Government and Reserve Bank over recent weeks to a challenging and ever evolving health/economic crisis.

Under Adrian Orr’s leadership the RBNZ has acted swiftly and decisively to ensure the financial/banking systems’ plumbing continues to work and cash flows to parts of the economy where it is needed.

Finance Minister, Grant Robertson has also understood the requirement to “go big and go early” with fiscal measures designed to keep as many jobs in place as possible.

The announcement last Friday of the “safe harbour” measures for company directors facing tricky insolvency questions, being an example of quick and pragmatic thinking.

We are seeing the advantages of being a small and integrated economy, able the adapt and change rapidly if required. The cumbersome Federal/State structures in Australia and the US which often appear confused with mixed messages, disjointed and slow by comparison.

What has all that preamble got to do with the NZ dollar currency value you may ask? The answer lies in how the rest of the world will see us if we emerge out of the crisis less damaged, earlier and confident on the shape of our economic bounce-back. On a relative scale, we will certainly be well ahead of the US and Europe on most economic measures.

US employment plummets – worse to come

The loss of jobs in the US economy is already staggering, with 10 million signing on to the dole over the last two weeks and the March Non-Farm Payrolls reducing by a record 710,000.

The numbers will become a lot larger over coming weeks as more states lockdown and the dominant services sector is decimated.

The surprise has been that the US dollar has not been sold in response (as yet) to the rapidly deteriorating US economic picture.

The Kiwi dollar has recoiled by 1% to 0.5870 from 0.6050 a week ago as the USD made gains from $1.1150 against the Euro a week ago to $1.0800 (3% USD appreciation).

The Kiwi dollar is starting to hold its own in the face of lower equity markets (always a negative) and a stronger US dollar.

It is difficult to see the US dollar sustaining its gains given the massive additional supply of USD’s from the Federal Reserve and the US now being the epicentre of the coronavirus pandemic and the resultant greater negative economic impact. Weekly jobless claims numbers in the US should be the focus of FX markets, and they will not be a reason to buy the USD.

'Big picture' historical cycles instructive for Kiwi dollar direction

In the very short-term the focus will on this Wednesday’s Global Dairy auction results with the futures market indicating another 3.5% drop in Whole Milk Powder (“WMP”) prices to US$2,700/MT. Over the last five years there has been strong support for WMP prices at around this level and they should hold here.

Whilst not so evident in recent times, the correlation between the NZ dollar and our export commodity prices has always been a very strong link. Over the last 35 years the four sudden and large decreases in the NZD value against the USD have been caused by the collapse of our commodity prices (refer to the pink bubbles in the chart below; 1990 Economic Recession, 1999 Asian Financial Crisis, 2009 GFC and 2015 Chinese dairy price collapse).

The current NZD depreciation has been caused by other factors. What results from a lower currency without a corresponding fall in our export commodity prices are booming export returns in NZD terms. Once we get past the current crisis, that economic positive will be much plainer for everyone to see.  

The second chart plots the NZD/USD movements against the USD Currency Index (Inverted Axis) over the same 35 year period.  US dollar strength over recent years, moving up from 75.0 to 100.0, due to higher interest rates and good economic growth, justifies the NZD/USD rate being in the mid 0.6000’s, not 0.5500. Should a  weaker USD value come about as the US economy suffers more than most from Covid-19, a USD Index back towards 90.0, would see a higher NZD/USD value.  



Daily exchange rates

Select chart tabs »

The 'US$' chart will be drawn here.
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Daily benchmark rate
Source: RBNZ
The 'Bitcoin' chart will be drawn here.
End of day UTC
Source: CoinDesk


*Roger J Kerr is Executive Chairman of Barrington Treasury Services NZ Limited. He has written commentaries on the NZ dollar since 1981. 

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


There is agility and ability about certainly and that is because NZ as an exporter of primary producer from the far end of the world has had to learn by experience, some of it bitter, to adapt as its markets evolve and change. What will be a challenge now will be the ability to perceive how each market stands in its new circumstances post CV19. For instance the end consumer may well be diminished in terms of both numbers and spending power. The high end value product, chilled lamb for example could well become difficult to actually sell in its niche of ready retail H & R especially with a relatively short shelf life involved. Suspect the vital Easter programme in Europe might be encountering that right now. Bit like driving your SUV, select different gears as the terrain changes.

Its going to be very difficult to earn fx from food exports once covid affects workers and supplychain here in Nz and also wipes out our consumer demand in our foreign markets. Put it this are you going to buy chilled lamb or king salmon in our foreign markets if you've got a respirator tube down your throat or you can't actually work. Sorry to say it but our economy needs to move rapidly beyond the primary sector and it may be covid that pushes the much needed change...its going to be the tech savvy types that can leverage the global connectivity of a smartphone or a tablet that are going to prosper in the weeks and months ahead, I predict a very difficult year for the primary sector. Orr knows it too which is why the RB has kicked in QE...finally!

At the end of the day you can't eat what you download, and based on stats so far most of the people who get the wuflu will get through alive without seeing the inside of a hospital. Primary sector is absolutely what we need to leverage; we will never quite match The Netherlands in agricultural exports due to our distance from customers but we can definitely use this crisis to get a bit closer...

Give consumers money (i.e. cheques in the mail or direct deposit to accounts), then hope and pray that they spend it.

I'm also highly concerned that our destination markets are going to be slammed shut as countries move to protect or foster development of their own onshore food production. Protectionism is only ever a crisis away. Imagine if that'd be like going back to the 70s economically...


It would be great wouldn't it? Policies for the benefit of our own people

I'm not sure it would be, this country has proved time and time again to be far too regressive in the face of economic adversity which only compounds matters to make things even worse. We need a massive step change away from the focus on inefficient primary sector activity. The previous government failed completely in that regard and only suceeded in causing immense environmental damage. Who will be the change maker?

What we need is to focus on allocating our resources more efficiently over a diverse range of industries. If we devote too much of our land/resources to one industry e.g. forestry as a current theme, we expose ourselves hugely to global markets and also may be using land for forestry that would be better suited to another land use like wine or sheep etc. Overseas investment has exacerbated this immensely, so until we start making steps towards protecting our own interest in our backyard for our own citizens we will continue to get more of the same.


the biggest problem in Rural NZ is poor return on assets, that's due to massive speculative asset bubbles in land.

At the moment lots of people in Hawkes bay are out of work, these people would gladly pick apples but that job is being done by imported cheap labour.

Andrew, Interest last year had an article, think it was by DC, that said there had been no bubble in rural land. The figures supplied proved so. I will try and find this article.
I always thought he was wrong as he had selected a narrow, recent time period where as if 1980 to early 2000s had also been included a bubble hangover had been clearly overhanging for quite a while.

National's 'Double Primary by 2025' in hindsight didn't help the propping up of land prices. That as a slogan was right up there with their promise to clean the rivers by Aug 2381.

Here it is.
He was talking about the last decade.

I will have a look, since 2008 and the dairy crisis dairy land appears to have plateaued .Our sheep farm was 600k in yr 2000, 1.2 mill in 2004, 2 mill 2008, 2012 2.2 million, yr 2019 just under 2.9 million.
So orchards and sheep and beef farms have seriously popped out to the stratosphere.

Banker over lending against the China Dream.

Back to the drawing board about rural credit.
Role of family farm v corporate.

Looking for productivities in processing and supply chain logistics.
Domestically, start with the supermarkets.

Andrew I think you'll find it's that Kiwi's don't want the picking jobs and the employers don't want them. Too lazy, too unreliable and too many on P. Business risk. Easier to get Fijians. There is also the problem of winz making it complicated for seasonal workers fluctuating income, such that, in defense of those who actually want work find it too difficult to report changing hours and picking income to winz.

lots of forestry workers who really can put in a days work.

Bunch of my friends picked fruit seasonally.

My father also picked fruit in 1969. He made the equivalent of $36 per hour as the picking crew manager (of about 8 people). How does the pay compare now?

Of course, they stayed in the dorm at the orchard as that was part of the package.

I also worked in an orchard in the 80's the money was really good, as long you were carefully not get put on poor contract rate. Some orchardists were super cunning.

and this is crazy, stark raving bonkers kinda crazy

Now that NZers have got a sharp taste of the kind of world Xtinction Rebellion and many Greens want for us (ie no air travel, empty motorways etc) there will be a huge backlash against climate-change policies (including the ban on new oil and gas exploration) that will make us poorer as a nation. Here's hoping the billion trees programme devouring farmland goes the same way.

I think you're right, but it's even more simple - we simply won't be able to afford to go Green now. Apparently Australia are already green lighting mining projects that were caught up in the green debate. We are going to require serious economic expansion to get out of this mess.

That's an interesting reaction, quite the opposite of what many people are having. A lot of people only seem to be hoping it'll result in a less debt-ponzi based, less consumption obsessed, and overall more sustainable approach. Not a violent reaction back the other way into excessive consumption.

(I'd definitely agree the distortionary billion tress program needs some fixing.)

But we've just created a shed load more debt, privately and publicly. It has to be paid for. What other way is there (that is sensible)?

Just keep printing....or debt jubaliee...

We are certainly well placed to recover quickly -- but do we have the courage at the top to make it happen ?

we had nearly 150,000 people getting job seekers allowances - despite a huge number of vacancies, many of them in agriculture prior to the current crisis- despite this we were offering an extra 20000 temp work visas to get fruit pickers - not the highest skilled job in the world and one that you would think some of those 150,000 people could have done!

At one stroke -- we could remove all the temporary work visas - the 25,000 or more foreign tourist guides, massive numbers f foreign chefs -- all of which we dont need. We can get rid of the migrant labour for harvesting - after all plenty of Kiwis fit and healthy to do this work - build infrastructure using those laid off building staff from fletchers -

This in turn would hugely reduce the demand on our public services, health , education and of course housing - again freeing up builders, plumbers, sparkys and teh like to focus on our own core infrastructure - schools and hospitals as a start!

It just takes teh courage to say - there is a job here - you must take it - or lose your benefit -- no exceptions - if you can work you need to work - and then keep the doors to teh country closed until we have the capacity to cope - even then only targeted immigration in serious public service shortages - Doctors nurses teachers - not bloody fruit pickers, chefs ( flipping burgers or mass producing Indian takeaways and fruit pickers!

1265 petrol stations in NZ.
Nearly all staffed by Shane Jones' "psuedo students"

At 2 full time jobs per station that's a lot of jobs that should be freed up for kiwis

Let's not go down the Xenophobic road like the Aussies. If they're already in NZ and hard workers, let's keep them here. We'll work it out.

A low NZ$, product prices holding up (at this stage?), the world needing to be fed (most countries are at full feed production capacity already, subject to how many people die of Covid 19?), options a plenty for new farm staff. This the best news Ive seen for the NZ primary sector for a very long time........, at some stage in the not too distant future we will see inflation of primary land values (safe investment compared to shares, or a building with no tenants, or a bank with no money). Time to lock and load boys and make hay while the sun shines!

the world of agriculture has gone through massive change, Russia/ old eastern block/ sth America, innovation and Tech/ USA Ethanol industry.
It is no longer possible to think local when we are so dependent on exports, Argentina has closed some ports the USA shipped 11 MMT of Soy to China at the cost of Brazil, the biggest producer also the biggest cattle herd, Brazil cattle herd up 10x since `1999.

GM crops now have Soy and maize grown in Canada, who would have thought Maize/Soy in Manitoba. So they go from grains at 4 ton a hectare to maize at 24.

I would avoid making generalisations about the future of Ag, we are no longer cheap producers, Russia is the biggest exporter of wheat and soon will be exporting pork and beef.

The CCP will make decisions about where to import food from, it's been the big export growth story for most of the world of Ag, there is no other big player. The wool industry is on it's knees due to the dominance of China, why should any other product be different?

NZ shouldnt get too comfortable about being the breadbasket of the world.
A couple of years ago there were riots in India when the tomato price quadrupled to the equivalent of NZ $0.75 per kilo.
Of course they use herbicides and fertilizers which NZ farmers dont.

The current NZD depreciation has been caused by other factors.

Against the backdrop of strong demand for dollars, the supply of hedging services has fluctuated with the
risk capacity of financial intermediaries. After the GFC, banking sector assets have grown noticeably more
slowly (Graph 3, left-hand panel), reflecting the increase in the cost of bank balance sheet capacity (Erik et
al (2020)). In the meantime, banking activity became more sensitive to the strength of the US dollar
(Graph 3, centre panel).

A key mechanism through which the US dollar exchange rate can affect the risk-taking capacity of
banks is the financial channel of exchange rates (Bruno and Shin (2015)). For a global bank that holds a
diversified portfolio of loans to borrowers, some of whom have currency mismatches, a broad dollar
appreciation tends to increase the credit risk of the portfolio of loans. This drives up the tail risk in dealer
banks’ global portfolios, which in turn reduces their risk-taking capacity if the bank adjusts total lending
so that total risk is managed down to match the bank’s economic capital.

A manifestation of this channel has been the negative relationship between the broad US dollar index
and the basis for number of currencies. Intuitively, global banks’ willingness to supply FX hedging services
has fluctuated with the strength of the US dollar (Avdjiev et al (2019)). And as a consequence, periods of
broad dollar strength have coincided with a large (negative) basis for most major currencies. This
relationship has been especially strong during the recent period of pandemic-induced stress in global
financial markets (Graph 3, right-hand panel). The sharp appreciation of the dollar in recent weeks (red
line) is mirrored by the sharp widening of the FX basis (blue line). Link

Why do you think the basis has blown out?

The article questions "whether we have a local workforce prepared to change to the physical demands of picking apples, pruning vines and milking cows".

Perhaps a better question might be this: given that

  • fully robotic milking sheds have been here for a few years now
  • robotic apple pickers are in the process of commercialisation
  • surely vine-pruning is just waiting for an eager team of starving Engineering post-grads to robotise That too
  • interest rates are at their lowest in decades

why are warm human bodies even needed for such apparently unloveable work, when the robots bought and installed using the cheapest capital in a century can do the hard yakka, and the Robot Controllers just need to twiddle the dials, and make sure the Vine Pruner does not stray into the wrong paddock and start manicuring the Belted Galloways?

Excellent points Waymad, our biggest issue with robotics in dairy is the huge capital cost and lack of return on investment given the huge volatility in returns. Best to keep it simple and borrowings down during volatile times (which are now the norm).

And disposable.

its ridiculous that in 2020 we even have to touch a cow in this country to milk it. I first saw a milking robot when I was on my OE in the early 2000s I also saw mechanised harvesting machines for berries. My brother in law was whinging to me a month or so ago that he couldn't find anyone to work on his farm and milk his cows...I told him he was stupid for trying to hire a person to do a shitty job like milking cows and that he should just get a robot. The penny is still to drop. I'm not suprised as he is still trying to figure out how his smartphone works. If thats the benchmark in our primary sector....

Are you claiming: Just a farmer - what would you know?

4th Estate - May I suggest that in order for you and your sister to have a great lifetime relationship that you slow down a tad and take sometime to analyse your brother in laws accounts. By doing this you will find that for the last 7 years times have been very tough down on the farm, from not only a financial point of view but also climate, m.bovis and environmental rule changes. Margins are very tight and as a result of all of these issues the never ending bank credit has dried up.
Robots are a simple solution to one of the problems down on the farm. They are however expense ($250k each plus infrastructure etc etc lets say $10k/cow all up or $30k/ha or $5m/500 cow farm. It is very difficult to get a fair return on this type of capital investment in NZ.
Why? because NZ is one of the few countries in the world that doesnt support its farmers e.g. subsidies via price support, tax incentives etc etc.
I hope the penny has now dropped and you take the time to appologise to your sister and brother in law for talk so poorly about the people that are one of the few left in these tough times that will still be earning export dollars into NZ.
Once youve considered these issue's then hopefully the penny has dropped and you realise that your poor brother in law is a product of a system way beyond his control.

I hope the penny has now dropped and you take the time to appologise to your sister and brother in law for talk so poorly about the people that are one of the few left in these tough times that will still be earning export dollars into NZ.

I fully recognise your claim as a defence against the ballooning current account deficit and acknowlege leveraging unrealised residential property gains to fund extravagant foreign holidays and prestige car imports is regrettable.

Unfortunately, many also recognise the future lies here.

With the black cash economy vanishing the welfare lifestyle elected by many on the job seeker support benefit becomes less lucrative. Those electing to live in rural areas and demanding taxpayers fund that decision, may also find the demand for their green cash crop dries up.

Best thing about covid is that it has demolished our immigration ponzi house of cards.

Will have to rebuild now with a genuine economy.