NZ dollar's rise helps redress Australian imbalance
FOR New Zealanders interested in investing in Australia, 2015 looks set to provide a golden opportunity.
The kiwi is now the closest it has been to parity with the Aussie dollar since December 2005. That's a fact that won't have been lost on Infratil and the New Zealand Super Fund which yesterday confirmed they had snapped up a large Aussie retirement village operator for A$640 million.
Clearly they see big growth in the sector and this is a strategic investment -- but the exchange rate sure helps.
At today's rates the cost of the acquisition converts to about $670 million -- nearly $60 million cheaper than if they had bought this just two months ago.
The kiwi has been on a roll against the aussie in the past few trading days.
Even in the depth of the silly season, markets keep ticking. Currency traders, particularly through Asia, don't take much of a break.
They're betting that New Zealand's dairy-dominated economy is better placed to weather this latest global commodity downturn than Australia's hard resource-based economy.
Yesterday morning the kiwi touched A95.72c, having soared from about A88c at the start of November.
Based on the current trend, talk of parity with the aussie is entirely reasonable.
So what does that mean for New Zealand in 2015?
Like most market dynamics this one brings both good and bad news. Clearly for exporters with a transtasman focus this is not the start to the year that was wanted. The spike will cause serious concern for some key manufacturers.
But more broadly, the pain for the export sector will be offset as the US dollar continues to gain ground against both the aussie and kiwi.
Meanwhile, the higher purchasing power of the New Zealand dollar across the Tasman offers a tantalising chance to redress some of the structural imbalances between our two economies.
In short, now is a good time for New Zealand companies and investors to be buying in Australia. The smart local investment funds will already be running the numbers on Australian equities which will now Kiwi's surge provides chance to redress balance with Oz
For years we've watched Australian investment in New Zealand drain dividends from the country and blow out our current account.offer better value from this side of the Tasman.
For New Zealand companies there is also opportunity for Australian expansion, as Infratil demonstrates.
Although any big acquisitions still need to be underpinned by long-term investment fundamentals, any New Zealand businesses already assessing the Australian market now find the wind at their back.
A period of currency strength against the aussie, coupled with a lower rate against the greenback, may provide a rare opportunity to redress the investment imbalance with our Australian cousins.
For years we've watched Australian investment in New Zealand drain dividends from the country and blow out our current account.
Australian corporates and investment funds have been big buyers of New Zealand assets from banks to power companies.
Many New Zealand-based and NZX-listed companies are actually substantially Australian owned thanks to the weight of investment by Australian managed funds.
Australia's long-running compulsory superannuation scheme has generated nearly A$2 trillion in investment capital. By comparison, KiwiSaver has generated about $20 billion. Looking at those numbers, one can hardly expect the investment flow to change direction.
Still, it is a start and local funds will no doubt be looking across the Tasman with renewed interest while this kiwi/aussie strength holds.
A shift in the balance, however small, can only be good for our economy long term.