Local steel supplier Tiger Saw says the higher costs are also curbing demand for residential builds, but commercial construction activity is in a better position to withstand the price shocks. (File image) Photo: RNZ / Diego Opatowski
A local construction supplier says the price of steel jumped 10 percent over the weekend, following a sharp drop in the value of the New Zealand dollar.
The NZ dollar had fallen more than 3 percent against the US greenback since Friday to hit 52.26 US cents - a low last seen during the March lockdown in 2020.
It was triggered by the announcement of Britain's new "mini-budget" which promises to cut taxes but increase borrowing.
The soundness of the plan upset investors, who aggressively sold out of the pound driving it to an all-time low.
The sell-down reverberated around the financial system, impacting currencies across the board, including the NZ dollar.
Local steel supplier Tiger Saw, which imports products for the domestic market, saw the effects of the dollar's slide first hand.
Tiger Saw managing director Brent Curnow said the sharp decline had been costly for its business and its customers.
"The price went up over the weekend for steel by 10 percent. This relates to the exchange rates for US dollars because all products that's imported for steel is purchased in US currency, so it has had a dramatic effect."
The higher costs would be passed on right throughout the building supply chain, meaning it was the end consumer who would ultimately pay, Curnow said.
The higher costs were also curbing demand for residential builds, but commercial construction activity was in a better position to withstand the price shocks, he said.
The recent sell-off in the NZ dollar against the greenback was not isolated.
Currencies around the world have been hammered this year by the aggressive tightening of monetary policy by the world's most important central bank, the US Federal Reserve.
The NZ dollar was down by about 17 percent for the year because the higher rates available in the US, plus the safety it offers during times of global economic uncertainty, had seen the US Dollar Index - which measures the value of the greenback against a basket of currencies - hit a 20-year high.
Harbour Asset Management currency strategist Hamish Pepper said against this backdrop, the fall in the NZ dollar was not unusual.
"I think this is a reaction we are somewhat used to, where if there are worries in the world, if equity markets are falling ... we are a currency that reflects that concern."
The softness in the local currency would drive up the cost of imports, most notably fuel, Pepper said.
On the other hand, exporters would experience increased demand for their goods and services, because they would be cheaper, he said.
Bagrie Economics managing director Cameron Bagrie also predicted that New Zealand consumers would have to pay even more for goods and services that come in from overseas.
"Offshore travel is going to get progressively more expensive if you're at a US denominator destination.
"At the moment, we're screwing the scrum away from importing goods, away from domestic consumption of those imported items towards the export sector," he said, adding that farmers would be one of the sectors likely to benefit.
The tourism and export sectors would benefit from the low value dollar, Bagrie told Checkpoint.
However, Backpacker Youth Adventure Tourism Association president Brian Westwood said the weaker dollar would not necessarily entice more people to come to New Zealand, because the cost of flights was high compared with other countries.
Although, a cheaper dollar meant people who were already planning to visit New Zealand had more to spend, Westwood said.
"Generally, people will have a budget in their own currency and they'll be prepared to spend a certain amount, and if that buys you more on the ground then that definitely has a benefit."
Pepper said this dynamic was the exact opposite of what the Reserve Bank was trying to achieve by raising interest rates.
"It wants to see the inflation we are inheriting from the rest of the world to be coming lower and it's wanting to see domestic economic activity slowing," he said.
"A weaker currency works against both of those things."
The Reserve Bank (RBNZ) may have to do more in its fight against high inflation, he said.
RBNZ governor Adrian Orr said New Zealand [https://www.rnz.co.nz/news/business/475565/tightening-cycle-to-control-inflation-well-advanced-adrian-orr
still had more work to do to combat inflation], but it was getting there.
Inflation at 7.3 percent was too high, but it was coming down, and New Zealand was in an "excellent" position compared with many other economies, Orr said, although he conceded that wages were being "challenged" by inflation.
"We've got a little bit more to do before we can drop to our normal happy place, which is to watch, worry and wait for signs of inflation up or down."
The RBNZ was widely expected to deliver another 50 basis points rise to take the Official Cash Rate to 3.5 percent at its next policy meeting next week.