Parity party or party pooper? There’s plenty to consider

What will a record high currency mean for Kiwi consumers and the economy?

Cheaper consumer goods

New Zealand’s shopping malls and high streets are already full of Australian retailers. Over time, the stronger the Kiwi becomes, the cheaper goods will become.

Many Australian retailers dual-price their labels, showing how much goods cost in either currency. Even now this often has the price in New Zealand dollars about 20 per cent higher than in Australian.

If the New Zealand dollar reaches parity, pressure will grow for the price to be the same on either side of the Tasman.

With New Zealand’s currency effectively worth more, it will also encourage more Australian businesses to expand here, as sales become relatively more valuable.

Australians pay more for our food

New Zealand sells more to Australia than they sell to us, mainly because of the huge volume of food and wine products that we export across the Tasman.

But every time our exchange rate strengthens, it makes those products more expensive. This could eventually lead to a loss of demand in local markets or those from other countries, hurting farmers and other primary producers.

That could be good for consumers at home, though, as Australian exporters are likely to look to New Zealand for expansion, with Australian beef already becoming a more common in supermarkets.

Grain – another major import from Australia – will also become cheaper, bringing down the price of many other foods here in the longer term.

Cheaper trips across the Tasman

While it can take months or years for a strong dollar to bring down the cost of goods at home, when travelling, a stronger dollar makes everything cheaper immediately. Visiting Australia is already much cheaper than usual, and parity would only make it cheaper.

In the days when the kiwi bought less than A80 cents, something last seen in 2013, a A$150 a night hotel would cost almost NZ$190. The strong exchange rate happens to have come at a time when flying internationally is cheaper and easier than it has been for years.

Fewer Aussies will come here

The flipside of it being cheaper to visit Australia is that Aussies will find New Zealand more expensive coming here.

While the number of Chinese visitors is growing more quickly, Australia provides by far New Zealand’s largest number of tourists, climbing 6 per cent in the year to July 30 to 1.37 million.

Because the market is mature, Australians often tend to travel more widely than the Chinese, meaning the impact on the economy is deeper. Australians are used to their money going a little further when they holiday here, so the longer the New Zealand dollar stays stronger, the greater the risk that we build a reputation as an expensive place to take a holiday.

Bragging rights

Be careful sending out invitations for your parity party just yet. Currency experts and economists tend to refer to the New Zealand-australian ‘‘cross’’ as the widow maker. Careers and fortunes are ruined by predictions of parity, and cynics often say the best indication of when the kiwi will start dropping suddenly is as soon as market experts start predicting parity.

But, logically, it will happen eventually, and it will provide a new type of bragging right over our Australian cousins.