Consumers appear likely to be the hardest hit as the US dollar continues to strengthen and the kiwi nears lows not seen in almost three years.
New Zealand fuel prices are already at record highs, partly because of the weakened New Zealand dollar, but further weakening will see households and many businesses hard hit in the months ahead, in a variety of ways.
Since May the foreign exchange cross rate has plunged from US75 cents to just above US64¢ on Monday, as the US economy bounds along from strength to strength.
Craigs Investment Partners broker Chris Timms said the US dollar strength looked set to continue.
The US' central bank, the Federal Reserve, was in a “raising cycle” with its three upward interest rate moves, plus recent positive economic data, including near 50-year unemployment lows and more than 130,000 new jobs last month, he said.
“The US (dollar) should strengthen further from here, which means further weakening for us,” he said. Some analysts have suggested the 2018 average could go as low as US62¢ for the calendar year.
Timms said the cross rate would have to “drop fairly rapidly,” given there were less than three months of the year to go, to average out at US62¢.
“(However) there's nothing in sight to strengthen us against the US dollar,” he said.
Craigs was maintaining a forecast range of US61¢-US66¢ for the year. While the country's exporters and people with overseas investments will be gaining, importers, including fuel, will see costs mounting.
Costs for those goods would all “in time” flow through to retailer and some transport companies, then eventually to the consumer, he said.
“For the likes of Mum and Dad, its fuel prices and groceries, then given the flow through (later) cars, whitewear and appliances. Costs will eventually be passed on to the consumer,” Timms said.
Analysts predicted some respite may be on the way after China's central bank announced a steep cut in the level of cash its banks must hold in reserve; which is estimated to free up $US175 billion ($NZ272 B) to shore up the faltering Chinese economy.
Timms said freeing up of cash would be good for NZ exporters, given China was the country's largest trading market. However, countering that boost is a current review by the Chinese Government of its cross-border e-commerce channels, which was already having negative impacts for some kiwi exporters.
“That in itself is already causing a lot of uncertainty,” he said.
ASB chief economist Nick Tuffley said the “key catalyst” for the kiwi's decline - of 2.7% last week against the greenback - was the sharp increase in US Treasury bond yield, which hit a seven year high interest rate of 3.23% last Friday.
“Further upward pressure on US Treasury yields is likely to see the New Zealand dollar/US dollar test new lows - which could be US63.5¢ this week,” he said.
Tuffley said he had a stronger US dollar outlook, given solid US growth outlook, its higher terms of trade and weaker outlooks for the Chinese and emerging markets
*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.