Our largest currency speculator

July 2nd, 2008 at 2:16 pm by David Farrar

Ben Thomas at NBR reports on how the has gambled a massive $4.2 billion on currency speculation in the last year.

This has all been through way of sales of NZ dollars. The Reserve Bank is hoping it can then buy the dollars back in the future when the exchange rate is lower.

I have to say I prefer to do my own currency speculation, rather than have the Government do it for me.

Tags: , , ,

22 Responses to “Our largest currency speculator”

  1. sonic (1,995 comments) says:

    If you are thinking of investing David this might be a good opportunity

    http://www.stuff.co.nz/4604087a10.html

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  2. dave strings (607 comments) says:

    Hmmmmmmmmmm

    You buy a lot, the price goes up
    You sell a lot, the price goes down

    When the NZ$ is up we get inflation, trade deficits and happy farmers
    When the NZ$ is down we get inflation, trade deficits and unhappy farmers

    I wonder if our currency trader (you don’t need more than 1 if a misely NZ$4.2 b is all you’re going to trade in a year – a Goldman Sachs guy would do that in a week I would suggest) is a farmer?

    Just a question!

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  3. roger nome (2,088 comments) says:

    Doesn’t the Aussie reserve Bank do this as well? Also, Surely it’s better than having unpredictable buy-ups of the NZD by currency vultures like John Key?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  4. themono (128 comments) says:

    Most central banks in modern countries with floating exchange rates conduct open market operations to some degree. It’s just another variation on buying or selling bonds. Move on, nothing to see here.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  5. Kimble (3,955 comments) says:

    Yes, the RBA does this as well. Though it is still questioned whether they should be.

    Nice language, Nome, but you do realise that vultures only dine on things that are dead or dying. So are you saying that the NZ currency is dead?

    Of course, you would choke before saying anything remotely complementary of your most hated (yes, hated is the right word) political opponents, so would baulk at using a term like hawk, falcon, or eagle.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  6. pushmepullu (686 comments) says:

    Damn straight Kimble – John Key is no vulture, but a noble eagle who shelters New Zealand under his wings, and a mighty hawk who strikes hard at the enemies of democracy

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  7. Dr Robotnik (533 comments) says:

    It could also be said he’s a falcon count who wants to steal power from nice Unkle Hellbeast.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  8. Buggerlugs (1,241 comments) says:

    You have to remember that for Woger, currency speculation is whether he can steal a $2 coin out of the tip jar without any of the cafe staff seeing him.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  9. PaulL (5,449 comments) says:

    Not all central banks do not manage their currencies in this way. And there is evidence that it is essentially gambling. If the RBA are so sure that the NZ dollar is over valued (which they must be if they are selling it), why are the banks and currency traders not also sure? Seems to me that if it were that certain they’d all be piling in to make a quick buck – that is after all their job.

    There is no need for the RBA to be buying overseas currency (which is what selling NZ$ implies), and they really should stop.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  10. NoCash (262 comments) says:

    Perhaps the RBNZ has a far bigger reserve to play with when they’re selling NZD. Also, by selling NZD (which they can print if need to), they also drive up the current account deficit, putting more pressure on the NZD to go down.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  11. kisekiman (152 comments) says:

    Interesting post although comments from Dave and Roger illustrate their ignorance again. I think farmers would generally appreciate a lower NZ dollar when repatriating receipts in foreign currency.

    Paul makes a valid comment and it begs the question, is the RBNZ trying to frontrun the market by having the benefit of inside knowledge of a rate cut later in the year? Risky business as they may find rate cuts untenable in the face of global inflation fears.

    I hope they have bought Euro and not USD as the ECB seems to be the only central bank willing to give inflation the kick in the guts it deserves.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  12. Falafulu Fisi (2,141 comments) says:

    Roger nome, I find your comment simply daft. I wondered if you’re what you say are, ie, an economist. How hard for an economist to see that there is a difference between trading & betting your own money (private businesses) and taking risk and betting someone else’s money (taxpayers) ? Is this too hard to understand? John Key’s trading was his own firm’s money & its shareholders , which they voluntarily deposit with them or buy shares with them. The government is betting the market with my/your money which was taken without my consent. Had I been given a choice to be taxed or donate voluntarily to the government for essential services, I would donate $50 a week to contribute to running our defenses & justice/law & order and that’s it. I would pay my way in society for things I want even if the roads/healthcare are privatized. You might agree with what the RBNZ is doing, but not every taxpayer agrees with that.

    C’mon man, you should reason, talk like an economist, and don’t talk crap because you might be mistaken by readers here/or elsewhere as someone who is a sociologist. You know those ones who receive government funds to study useless topics such as Bogans. Learn a lesson of how to talk & think like a real economist like our local experts & bloggers such as Paul Walker and Matt Nolan. I’ve always followed their analysis & their intelligent writings about economics because non-economist like myself do learn a lot.

    I find your posts & your analysis about most topics way off to be called an economist.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  13. tom hunter (5,134 comments) says:

    FF

    Don’t know where you got the impression that the Nome is an economist. He’s a Pol Sci major who may (or may not) have completed his Masters late last year.

    All the rest of the stuff like centralised wage bargaining is just trying to leverage those quals into something more useful than being a Pol Sci lecturer – hence his new-found interest in stats analysis over the last few years. However, judging from the OECD articles he slings about he still has a long way to go in truly understanding that correlation does not imply causation – even though it’s in Wikipedia. Go figure!

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  14. NZD.JPY (129 comments) says:

    Rogernome – yes the Aussie RB does this sort of thing fairly routinely. Just hope that they don’t come up against someone like Soros. I don’t really understand why you have a problem with currency trading. You seem to take it for granted that it is bad and maybe in your circles you all understand why, or at least pretend to, but if you could explain here I’d be grateful.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  15. OECD rank 22 kiwi (2,760 comments) says:

    Falafulu Fisi – Rogernome is an economic ignoramus. A jackass if you will. The village idiot. Socialism makes him silly.

    On the topic of the New Zealand dollar, it’s a widely held belief amongst economist that the currency is going to drop through the floor once the Reserve bank starts cutting interest rates and investors lose interest in the New Zealand dollar. It won’t be pretty for the average hard working New Zealander with costs already soaring. Unfortunately it’s a burden that New Zealanders are going to have to bear.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  16. expat (4,050 comments) says:

    The reserve bank has been trying to keep a lid on the appreciating kiwi dollar from what i understand. who knows they may also make some money of it.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  17. PhilBest (4,757 comments) says:

    Look, the trouble with piddly little nations like NZ trying to kid themselves that they have “sovereignty” over their currency, and engaging in this sort of horsetrading for political objectives, is that George Soros alone could “break” them in days so as to make himself a handsome gain after the NZ Reserve Bank has “folded”. The only reason people in the Soros class aren’t doing it to NZ is that there isn’t enough in it for them, seeing they can do it to nations like Britain…………

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  18. duncan_bayne (36 comments) says:

    I have to say I prefer to do my own currency speculation, rather than have the Government do it for me.

    That’s excellent to hear, DPF. I presume this means you’ll be pressing for the Reserve Bank to be dissolved, and for banking and currency to be deregulated? You’ll end up voting Libz at this rate :-)

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  19. RRM (10,099 comments) says:

    “I have to say I prefer to do my own currency speculation, rather than have the Government do it for me.”

    Fair enough! After all, you do know it all :-)

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  20. NoCash (262 comments) says:

    PhilBest

    You do know that Soro was badly burnt by Malaysia when he tried the same trick he had tried on the Bank of England.

    There is a whole world of difference between what the RBNZ is doing and what BoE did. The RBNZ isn’t trying to keep the value of NZD high, but the very opposite. In which case, a sovereign central bank is in a much better position than traders/speculators. One big side effect is that such act is inflationary, but even that can be kept to the minimum by sterilization.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  21. PhilBest (4,757 comments) says:

    OK, NoCash, understand what you say, but as a general principle, is not the currency of a smaller nation a lot more vulnerable to moves by big speculators? And is there still not a potential killing to be made by a cunning operator when a Reserve Bank is SELLING to try to keep a currency low?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  22. NoCash (262 comments) says:

    Not when a central bank is selling its own overvalued currency like NZD. After all, the RBNZ has the biggest potential war chest when it comes to selling NZD. The RBNZ can print as much as it wants limited only by how much inflationary pressure the bank and Treasury are willing to accept.

    On the other hand, if a central bank is trying to use its own foreign exchange reserve to buy its own currency in an attempt to keep or drive up the value, then it could be vulnerable to speculators depending on the size of its reserve and its current account balance.

    IMO, it would be mad if the RBNZ doesn’t take advantage of the currently overvalued NZD to increase its foreign exchange reserve, especially as the bank has inside knowledge of when the OCR is going down, which no doubt will drive down the NZD.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote