The British pound is at seven year lows, the Australian dollar at 12 month lows and the Euro at record lows. But our currency has been in slow decline over the last four years, as foreign investors have become perturbed at the imbalance in our external accounts, our soggy sharemarket and our high levels of private indebtedness. Through the 1990s we went on a consumption binge fuelled by tax cuts and by borrowing, via the bank and the credit card, from the savings of people overseas. The result was an unsustainably high current account deficit. The weaker dollar will speed the correction in our external accounts.
Economists agree the kiwi dollar is undervalued.
When it will correct, and by how much, are impossible to predict. In the meantime, if the softer currency is exploited correctly, it will give us a strong foundation for future economic growth. But adjustment means change, and change always creates winners and losers. Householders and importers will find their money does not buy as much as it used to, some companies supplying the domestic market will find their profits squeezed. Rising petrol prices hit home hardest.