The Kiwi dollar is struggling to fly as ongoing geopolitical tensions in New Zealand are being felt heavily.
And as tensions rise, so does the price of commodities like a humble cup of coffee.
“Part of this story is the strong USD, which is weakening the NZD and many other currencies alongside it,” Sucafina Coffee’s Carl Sara told 1News.
“We also had a significant price increase in the New York futures markets, which also trades coffee.”
Due to volatility, it can take months for costs to be passed on from coffee importers to consumers.
Sara said while companies may consider absorbing the costs “if they have the capacity to do so,” the ongoing financial strain of the Covid-19 pandemic has meant that “much of that ability to absorb costs has been reduced “.
However, the lower Kiwi dollar was good for exporters as dairy giant Fonterra posted a profit of $583 million today.
“When investors are nervous, they sell assets like the New Zealand dollar,” said Satish Ranchhod, Westpac’s senior economist.
“Instead, they try to put their money somewhere they feel is safer, and it’s often an asset like the US dollar that is expected to retain its value.”
It comes after the US Federal Reserve raised interest rates by 75 points to fight inflation.
While inflation is also a concern for the Reserve Bank of New Zealand, Reserve Bank Deputy Governor Christian Hawkesby said they have “growing confidence” that inflation over the next 12 to 18 months will be “significantly lower than it is at present”.
Ranchhod said inflation is “likely to ease again in the coming months” but the weaker New Zealand dollar means “the decline will be much more gradual”.
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