BNZ chief economist Tony Alexander believes the Kiwi dollar can still reach equality with its trans-Tasman cousin

People should still take delivery of 'parity party' sausage rolls and "put them in the freezer", BNZ chief economist Tony Alexander says.

The prospect that the Kiwi dollar may equal the value of the Australian dollar was dashed for the moment yesterday when the Reserve Bank of Australia held interest rates at 2.25%, contrary to the majority expectations in the marketplace. As a result the Kiwi rapidly receded from over A99c in value to about A98c and was recently at A98.2c.

But Alexander believes the Kiwi dollar may still match the value of its Australian counterpart.

In one of his new "Sporadic" economic notes, Alexander questioned whether now that the Kiwi dollar had "settled back for a bit" against the Australian dollar we should "once  again do as we did in 1988, 1995, 2003, and 2005 – cancel the sausage roll orders and moan that one should have shipped money into Aussie dollars near 94 cents back in those earlier times or near 98 cents this time?"

His answer was: "Not at all. Take delivery and put them in the freezer."

Alexander said none of the many adverse Australian economic factors explaining the weakness of its currency were going to reverse direction in the near future.

"Two weeks ago I said it was a 50:50 call whether we reach parity. Last week I said 75:25. This week I say 85:15."

But Alexander said if we did achieve parity, what then? Further up his article Alexander had strongly reiterated previous comments he's made that "you cannot forecast exchange rates – and by you I mean me and every other economist I have ever met over three decades in this business".

However, Alexander said "at a pinch" the "fundamentals" suggested to him that the Kiwi dollar would be strong against the Australian dollar ("you interpret what 'strong' means") for the next couple of years.

"By late-2017 the migration cycle with Australia will almost certainly have turned, the Christchurch rebuild will be still under way but not as strong, dairy conversions and capital spending generally will be easing off, stimuli from lower interest rate and fuel price expectations will have washed out of the system, and we could be close to a correction occurring in one of the many bubble-like asset markets offshore being inflated by money printing and investors chasing yield in a low interest rate paradigm."

Alexander pointed out that compared with a year ago the Kiwi dollar had fallen against the American currency by about 13%.

"Is that worth writing about? Anyone exporting goods to the United States might think it is – but that would not be the Kiwi way. Pointing out how a sustained currency movement out of anyone’s control was bringing one a benefit would sound like skiting and as Kiwis we don’t do that.

"However, if the Kiwi dollar rises by just over 7% from a year ago against the Aussie dollar we do think that is worthy of comment, admittedly mainly because of the 'magic' number of 1:1 or parity involved – sort of like how all our lives were so much changed by the new millennium starting one and a half decades ago. In fact our fascination with parity is so strong I did numerous media interviews on the subject on Easter Monday and Tuesday this week. Why the biased interest in the NZD’s smallish rise against the AUD from a year ago?

"One reason will be because so much business commentary in New Zealand for perhaps over a century now has been couched in terms of what such and such means for exporters – not households or other businesses. Thus we have all been brought up on the mantra that a rising Kiwi dollar is bad and a falling Kiwi dollar is a great thing.

"With nothing else changing a higher currency will be bad for exporters. But it will also be good for importers and households and it all depends upon what is causing our currency to move higher. In this case it is not actually our currency moving higher – it is the Aussie dollar moving lower. In fact compared with a year ago the AUD has dropped by 18% against the US dollar. Our currency has admittedly moved up by 10% against the Euro, but that reflects not anything happening here but instead the poor state of the Eurozone economy and commencement last month of money printing by the European Central Bank."