But as every exporter and farmer in particular knows the NZD did not remain down. It quickly rose back up again to eventually set a post-float high against the greenback in March this year above 82 cents.

This time around things are different. On June 5 the Reserve Bank signalled they expect to start cutting interest rates later this year. This is because the economy is in an extremely weak state hit by a wide range of forces. First there is the weak housing market and weak retailing which appeared in the June quarter of 2007 when fixed housing interest rates rose above 8.5% on their way to over 9.5%.

We also have in play the effects of Summer’s drought in some parts of the country. And because the cyclical downturn in the housing market is so long overdue the weeding out of inexperienced and under-capitalised investors will be far greater than if the correction had occurred back in 2004 or 2005.

Escalating food and petrol prices are hitting household spending in other areas while business margins are being severely squeezed by rising costs. The economy is also being hit by the effects of the global liquidity crisis adding upward pressure to interest rates and downward pressure on trading partner growth.

With all these negatives in play and more not mentioned here it is perfectly reasonable to expect weak growth which will eventually bring inflation down back below 3%. But before then it is likely to hit over 4.5% and that is where exporters need to be careful about thinking the NZD is going to completely fall out of bed.

The Reserve Bank will be very cautious in their easing of interest rates because of the lessons of the 1970s in easing too soon after an inflation surge. But while we advise exporters to be cautious about thinking the NZD will quickly fall toward US 65 cents, it remains reasonable to expect depreciation partly because it is looking increasingly like the US dollar may have ended its cyclical decline.

Concerns are high about the way in which the falling USD is causing speculative fervour over USD-priced oil and food commodities. One cause of that fervour is a weak USD leading naturally to higher prices for goods priced in USDs. It is not inconceivable that US officials begin to indicate that a weaker greenback would no longer be as helpful for the US and world economy as previously thought.

Mainly however, once US interest rates start rising again next year there is likely to be extra support for the USD – and that is when we economists are likely to start suggesting we could see the NZD trading below 60 cents. But for now we think it is best exporters be cautious, anticipate improving returns from stock sales next season – but don’t forget to allow for the effects which a falling NZD will have on input costs.