A new high for the dollar

February 26th, 2008 at 9:21 pm by David Farrar

excratefeb08.JPG

The NZ$ hit a new high against the US$ dollar today. The above graph shows monthly averages except for Feb 08 which is yesterday’s peak.

NBR and NZPA report that we hit 81.5c and some traders are picking 90c.  Earlier forecasts were for a peak of 83c to 95c though.

Also of interest is  Westpac is picking the Reserve Bank to increase twice this year. Ouch. But an interesting call from the Canterbury Manufacturers Association for a variable rate compulsory superannuation saving scheme. So when inflation starts to increase, you increase the compulsory deduction rather than put up.

It’s a nice idea but will only affect personal consumption but business activity, so I am unsure whether it would be as effective as the cash rate.  But just like Don Brash’s suggested variable petrol tax – it would be good to model.

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18 Responses to “A new high for the dollar”

  1. Southern Raider (1,829 comments) says:

    What about a variable rate attached to Cullens wallet? So when inflation goes up the bastard stops wasting our hard earned tax money on dumb arse schemes. Everytime he dips his hand into his money bag we get hit several times from food prices going up to loss of jobs.

    I wonder how all the Working for Families people are feeling? Get given back other peoples tax and then they end up paying more in mortgage payments and food prices.

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  2. Buggerlugs (1,592 comments) says:

    Forex traders in Europe are picking a large dive in the Kiwi very soon.

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  3. Alces (285 comments) says:

    “So when inflation starts to increase, you increase the compulsory deduction rather than put interest rates up.”

    Try that con in AU and the punters will DIY it.

    Can’t do that in NZ? QED.

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  4. bwakile (757 comments) says:

    Gee I sure am happy that NZ isn’t reliant on exporting commodities for a living.
    Otherwise high cost of money and lower returns could really shaft us.

    The farmers knew at the last election that the writing was on the wall.
    The smart ones sold up and put their cash in the bank at 8%.
    Will get 10% next year.

    But don’t worry Cullen will keep taxing and spending our way out of the mess.
    He has spent years perfecting his wonderfull little money-go-round.

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  5. Rex Widerstrom (5,354 comments) says:

    Pundits in Australia are picking a further two rate rises before May in addition to the 10 we’ve suffered since property speculators caused the wheels to fall off. But the Aussies just put the new plasma screen on the plastic and go on believing that their investment properties will see them through. Which just overlooks the small factor that if rents rise any more, even more people will join those whose shelter is the cardboard box the plasma came in.

    New Zealanders seem to be more realistic, but nonetheless the cash rate is a very blunt instrument. It doesn’t hurt to float alternatives. Ploughing your “excess” money into superannuation doesn’t seem like a bad idea – better that you get it back upon reaching 65 (or however old it’ll be by the time you qualify) than it adds to the bottom line of a foreign owned bank, I would have thought.

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  6. Alces (285 comments) says:

    Every domestic asset class in NZ is wafer thin.

    Residential housing a bit better.

    Superannuation bunnies should consider as much offshore product as possible.

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  7. reid (16,440 comments) says:

    Is this reflecting strength in the Kiwi or weakness in the USD? For example,

    The only currency Berkshire directly owned now was the Brazilian real, Buffett said. He blamed the declining dollar on the current account deficit.

    “If something is unsustainable, it’s going to have consequences; so far the consequences have been a general decline in the dollar against major currencies,” Buffett said.

    Buffett has said he was looking for acquisitions outside the US, in part to hedge against long-term declines in the dollar.

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  8. SPC (5,619 comments) says:

    The question is whether we track up with the Australian – the suggested increases in their interest rates – or simply rise against a weakening American. It could be a decline to 80 cents Australian as they reach parity with the American.

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  9. valeriusterminus (243 comments) says:

    Some other figures;

    https://www.cia.gov/library/publications/the-world-factbook/rankorder/2187rank.html

    Please scroll to the bottom – see who “won” the cold war.
    Scroll back to the top and see those who did not embrace the freemarket ideal. Also see those who lost “wars” and those who were more Left and Sovereign than those losers at the bottom.

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  10. Anthony (796 comments) says:

    Why on earth did Labour not seek to stem the huge flood of borrowed money coming into this country, largely to fund real estate purchases? Foreigners lending money to NZers can elect to get just two percent tax withheld! Ineffective tax law means property investors pay negative income tax!

    While the government has been paying off debt it has been much more than counter-acted by individuals and corporates borrowing much, much more! Cullen should have listened to some of his colleagues.

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  11. valeriusterminus (243 comments) says:

    WTF has the NZD/USD rate got to do with the “Labour Government” let alone Mr Cullen. Has any poster here ever understood the RBA??

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  12. reid (16,440 comments) says:

    valeriusterminus, the 4th Labour Govt widened the inflation band when it realised it couldn’t conduct its foolish govt spending program within the previous constraints. It stood by while the real estate market turned into a bubble when it could have done a number of things to mitigate that. It didn’t even follow the recommendation of Cullen’s economic mentor Keynes: save in the good times so you can spend in the bad. The Cullen fund was a good start and many conservatives have applauded that but it could have done much more with the surpluses in terms of investing it into productive sectors. Instead it spent those on re-distribution projects that generate nothing productive.

    Any way you look at it the fools squandered the opportunity not of a generation but of a lifetime, for the sake of bolstering its own electoral chances.

    In the words of Leo Amery quoting Cromwell:

    “You have sat too long here for any good you have been doing. Depart, I say, and let us have done with you. In the name of God, go.”

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  13. Camryn (543 comments) says:

    Val – Interesting figures from the CIA factbook. The US current account deficit is amazing. There are 99 other countries with a current account deficit. The sum of their deficits is less than the US deficit. The US deficit is the same size as the sum of the three biggest surpluses (China, Japan, and Germany). Massive. It’s fun living here (in the US) while the party lasts, but I’m glad I have citizenship rights in NZ and the EU too!

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  14. Bevan (3,924 comments) says:

    WTF has the NZD/USD rate got to do with the “Labour Government” let alone Mr Cullen. Has any poster here ever understood the RBA??

    Increasing government spending pushes up inflation, which in turn forces up Interest rates, which then encourages investors to put their money in NZ for the high rates. This causes our dollar to increase. relatively small increases to spending shouldnt be too much of a factor, but unfortunately Cullen has been spending like a drunken sailor in a Thai whorehouse.

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  15. bwakile (757 comments) says:

    Cullen has merrily increased government spending but denied that it is inflationary.
    Private money is borrowed and spent but this is inflationary.
    Oil goes up and this is inflationary.

    The sum total is inflation so the RB puts up interest rates.

    The dollar rises as money pours in.
    Exporters loose money.
    Chinese importers have a ball.

    Cullen washes his hands of the whole affair because he is more interested in controlling peoples
    lives through high taxation.

    If our exporters go to the wall, no one wins
    Where is the leadership in that.

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  16. PaulL (5,981 comments) says:

    valeriusterminus: interesting. I’d like to see in percentage terms – Spain and UK would be crackers. I’m not sure the trend you see is really there – Germany and France at opposite ends. To some extent I see countries with mineral resources and low wages having surpluses, rich countries with consumer driven societies with deficits. Probably not a surprise. The US current account deficit has dropped enormously in the last couple of years – a little discussed fact whilst we’re blaming Bush for all ills.

    Try this one for debt: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2079rank.html
    As a percentage of GDP it would be interesting – UK way higher. Still looking for current account deficit over time for US, and as a percentage of GDP for the world.

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  17. Fred (163 comments) says:

    Consumer spending explains a lot for many countries with deficits and high debt, but I thought we would be doing way better than 149th and surely it looks even worse on a per capita basis. So we are living beyond our means. Will the dairy receipts make much of a difference? Increasing rates now would be fatal, we already have one of the highest rates and when our currency is no longer seen as safe (given these figures it can’t be) then the correction will be significant.

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  18. Anthony (796 comments) says:

    If my maths is right NZ’s external debt per capita is far higher than the US!

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