Mark Lister: Investment director for Craigs Investment Partners explains why the NZ dollar is suffering against the Australian dollar

The Kiwi dollar continues to weaken against the Australian dollar, hitting a three-year low last week.

The NZD is currently trading at 88 cents off the back of soft GDP growth and rate cuts, and concerns are raising as China's economic rebound could widen the gap further.

Investment director for Craigs investment partners Mark Lister told Mike Hosking that New Zealand's rate cuts are having a stronger impact on the economy than Australia's.

'We are obviously looking at more rate cuts than we expected and not for the right reasons.'

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Episode Transcript

Speaker 1 (00:00):
It's not like this hasn't been coming either, but you
might want to pay a bit of attention to the
value of our dollar or lack of it against the Australian.
We're at a three year low eighty eight something. It's
getting a bit embarrassing, isn't it. Mark lists in the
investment Or is the investment director for Craig's Investment Partners
and is back with us. Mark morning, Good morning, Mike.

Speaker 2 (00:16):
There's going very well.

Speaker 1 (00:17):
Indeed, the Australian story, first of all, is this the
divergence of a couple of economies. Their story versus our
story is and more to it than that.

Speaker 2 (00:25):
Yeah, I think that is the crux of it. And
more importantly, it's the interest rate differentials, which are already
there's a little bit of a gap there, but that
gap is expected to get wider as Australia cuts rates
more slowly because the economy is stronger, because inflation is
still a little higher than they would like, and we

(00:46):
are obviously looking at more rate cuts than we expected,
and not for the right reasons.

Speaker 1 (00:51):
No, indeed, not where does eighty eight sit historically.

Speaker 2 (00:54):
Speaking, historically eighty eight is actually right on the long term.
If you look at sort of the last twenty five years,
eighty eight is bang on. Obviously, there was a time
when we hit parody, and there was a time when
we were down as low as sort of seventy three,
so there's been a pretty wide range against the Aussie dollar.
Eighty eight is right on where it's been over that

(01:16):
twenty five year period, but it's quite a bit lower
than we've seen in recent times. We were up at
almost well, I think it was ninety four almost in April,
so we're off a good five or six percent since
just a few months back.

Speaker 1 (01:29):
I like early nineties. That feels about right to me.
It feels like we're sort of okay and they're okay
and the world is in the right place. Or is
that just me making stuff up?

Speaker 2 (01:38):
No, there's definitely a sweet spot. You know, as an
exporting nation, you want a lower currency. And remember that
Australia is even number number two or number three for
goods exports behind China, so about thirteen odd percent. It's
also one of our biggest I think it is our
biggest tourism market, isn't it. Some forty odd percent of
international arrivals come from OZ so if our dollar is

(02:01):
weak compared to their and hopefully there's more of them
coming here, and it's good for exporters, but it doesn't
It means we're poorer in a global sense, and it
means that anything we import from over there is more expensive.
So you definitely want it to be too don't want
it to be too low, do you?

Speaker 1 (02:18):
And how much of this is a global story? I mean,
when I'm looking at the pound at forty three, I mean,
for goodness sake, I mean, you can't afford to travel anymore?
Is that normal historically speaking as well?

Speaker 2 (02:27):
Yeah, that one is the one. The other one that
really stands out to me, Mike, And this one sort
of flies under a bit under the radar because we
talk a lot about the Aussie dollar. We talked about
the greenback obviously, but the euro. We're at about forty
nine against the euro, and the long term average there
is about fifty six odd and the last time we
were under fifty against the euro was sort of late

(02:49):
two thousand and nine, early twenty ten. That's the one
that really is at its lowest levels we've seen in
a long time.

Speaker 1 (02:57):
So good for exporters, but unfortunately we also like to
import stuff, and that's where the problem lies.

Speaker 2 (03:02):
Isn't it one hundred percent? And also you know that
puts a bit of upward pressure on our inflation backdrop,
doesn't it with the tradeaball's inflation, Because if we're paying
more for those imports, and we do import a lot
of products, then that that can sort of be a
challenge in terms of the cost of living. But look,
our economy is in a difficult spot, as you well know,

(03:24):
and I think a weaker currency is one of those
shock absorbers that hopefully will help dig us out of
this hole over the next little while, as it will
boost that export sector.

Speaker 1 (03:36):
So does economic growth fix the problem? If twenty six
comes right, do we see a rectification of some of
the numbers we've just talked about.

Speaker 2 (03:45):
In theory, You do, because the reason the currency is lows.
You've got a weak economy, you've got expectations of more
rate cuts in an ocr that goes lower than we
thought before. Let's say that moving into twenty twenty six,
that does give us the boost and the recovery that
we're hoping for, so you get some slightly better growth,
and growth usually goes hand in hand with more demand

(04:07):
and potentially more inflation pressures. The central bank is then
in a position to at least stop cutting interest rates,
and there's maybe rate hikes on the horizon. You know,
that's not a bad thing if they're coming for the
right reasons, and if that sort of puts US in
a stronger relative position to the Aussies, to the Americans,
to whoever else, then you might see a bit of

(04:28):
a stabilization or a bit of upward pressure on the currency.
And that's how it's supposed to work in theory. It's
supposed to act as that natural adjustment mechanism.

Speaker 1 (04:39):
Always appreciate the expertise might go well. Michaelister, investment director
at Craig's Investment Partners.

Speaker 2 (04:44):
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