The exchange rate

March 4th, 2009 at 12:13 pm by David Farrar

exratemar09

Very weird to go from breaking 80c for the first time in decades, to dropping below 50c in under a year.

I hate it when things start to cost more.

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35 Responses to “The exchange rate”

  1. Frank (320 comments) says:

    With the US dollar heading towards1, it’s a disasater when the New Zealand dollar is 50. It’s a real mess

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  2. dime (9,473 comments) says:

    Try being an importer like Dime :(

    We are getting nailed on a couple of fronts.

    1 – goods coming out of China are now more expensive. Between 20-35%
    2 – devaluation of the dollar

    I think consumers are going to get a big shock in the next couple of months.

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  3. getstaffed (9,189 comments) says:

    Of course if NZ produced more of what the worlds’ markets wanted, and at a price they were prepared to pay then the NZD would be going in the other direction. Instead we harp on about Buy NZ Made, and workers rights and other irrelevant delayers of the inevitable.

    We will never foot it on the world stage with counties who bring massive economies of human scale to labour market dependent industries. We need to adapt (into design, innovation, or carefully targeted niches) or slide further into global insignificance.

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  4. Gooner (995 comments) says:

    Has Dr Bollard sold his holdings yet and if so how much did the RB make?

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  5. unaha-closp (1,117 comments) says:

    The Yankee dollar is up against everyone, because America is offering risk free investment. Washington is gauranteeing that no state, pension fund, auto-maker, auto-parts maker, insurance company, bank or large company of any descriptin will be allowed to fail. They are loading their citizens with a huge debt burden, so heavy that it is only beaten by the cost of WW2.

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  6. Murray (8,838 comments) says:

    Start exporting.

    Of course thats a bit tricky having already exported our manufacturing industry already.

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  7. alex Masterley (1,491 comments) says:

    Prices sure are going up.

    I was in a ships chandlery 2 weeks ago and was told that on average the price of new stock imported from overseas would be 30% higher than the present prices.

    I knew I should have bought USD last year!

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  8. PhilBest (5,117 comments) says:

    This is incredible. This is the markets saying, we know your economic fundamentals are even worse than the USA’s. And that is pretty much the truth.

    Get Staffed, that is exactly right. The only nations that are going to do not too bad at this time, are the ones who had the fiscal framework in place so that investment was incentivised to go into productive activities rather than the asset gambling that has now become the ruination of the western world.

    I am finding it hard to understand why there is no focus at the current time on this. It is like the socialist takeover of our institutions has been so victorious that all that remains now is for the final coup de grace policies that will finish off our economies, the big borrow and spend, to be enacted; and it will not be long before the socialist international’s dream of “Russia circa 1920″ on a worldwide scale, is realised.

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  9. getstaffed (9,189 comments) says:

    Murray, manufacturing has been exported beacuse we’re not efficient at it. Either we choose to be come efficient (which I doubt, ref scale comment above) or we adapt.

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  10. gd (2,286 comments) says:

    If exchange rates are the indication of the health or otherwise of a country why has STG stayed at around 35p Kiwi when the UK economy has tanked

    I can understand the US for the reasons above and the Euro dropping from 56 to 39 given the Belgian dentists and the yen from 80s to 40s given the Japanese housewives pulling their funds but the STG doesnt make sense

    Any comments?

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  11. Murray (8,838 comments) says:

    “Efficient” is code slave labour getstaffed. We also need to display the will to stop buying the cheapest and crappiest available.

    Cut the DPB and the Warehouse will be out of business for a start.

    We either play with a big boys and get a hiding every time or we work out that we need to take care of ourselves first and possibly only.

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  12. dime (9,473 comments) says:

    Philbest – isnt it a case of Yanks bring their money home?

    I forget the term they use, but the japs had about $40billion in Aus/NZ.. a lot of that money is starting to go home too.

    We should really be around the 65cent mark. Life is good at 65 cents!

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  13. Spam (593 comments) says:

    If exchange rates are the indication of the health or otherwise of a country why has STG stayed at around 35p Kiwi when the UK economy has tanked

    The pound sterling has indeed fallen – look at the change in cross-rate between it and the Euro, for example.

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  14. beautox (430 comments) says:

    Well I’m fucking delirious. Roll on 40 cents. Or 35 cents. After years of pain at almost 80c, my efforts are now being rewarded.

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  15. KiwiGreg (3,181 comments) says:

    gd – both countries are effectively “down” so the cross rate doesnt move, perfectly logical.

    New Zealand is too small and isolated to compete effectively in most bulk manufacturing which is why we dont do it. “Efficient” isnt “slave labour” Murray – in fact its the opposite. I rejoice every time we can replace a worker doing repetitive manual labour on a production line because those are jobs machines were made for. There is no inherent virtue of manufacturing jobs over other types of work, and most modern economies are heavily service-dominated.

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  16. georgebolwing (612 comments) says:

    The nominal exchange rate is fun to watch, but really doesn’t mean too much in terms of economic welfare.

    What matters for our economic welfare in the medium to long-term is the level of productivity: how much we produce for a given amount of inputs.

    Productivity is very hard to measure. But we have two reasonable proxies: profits and income from labour (salary and wages).

    Unfortunately in New Zealand, we have a culture that suggests that these are bad.

    Firms increasing their profits are vilified. People earning high incomes are demonised. I think someone once called them rich pricks.

    Until such time was we have a political and social culture in New Zealand that celebrates and rewards success, and sees people earning high income from highly profitable firms as a good thing, we are destined to live a life of egalitarian decline: let’s all be poor together.

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  17. Phil (125 comments) says:

    I’m gutted.

    I have a trip to Europe coming up soon. At current rates, an average hotel in Venice for three night is upward of $1000NZD. It cost me $600NZD last time i was there…

    On the other hand, of all the things to worry about, the cost of hotels in exotic locales is small-fry

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  18. getstaffed (9,189 comments) says:

    Phil, I’m heading up there in June. I started prepaying many of my expenses back in December. The actual interest-loss vs potential (and partly realised) exchange rate exposure make this sensible.

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  19. Jack5 (4,603 comments) says:

    The kiwi had to fall. We’ve long had a balance of payments deficit, and sooner or later your credit runs out.

    Our use of high interest rates to control inflation brought capital in to meet the gap, but now foreign lenders — the Belgian dentists and Tokyo mums — know loss on their capital as the kiwi dollar falls will outweigh the high interest rates.

    During the good-times currency bubble, we moved our living standard up a notch or two and attracted more people into the country with negligible effect on export industries but perhaps some help for currency-earning tourism.

    If only the money that poured in from overseas had gone into building export industries instead of fixed-rate mortgages that powered the housing bubble.

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  20. Brian Smaller (4,000 comments) says:

    You really notice it when buying books from overseas. I should have ordered the ones I wanted last year. Oh well…

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  21. Murray (8,838 comments) says:

    Phil my heart goes out to you, when I take my anual holiday in downtown Palmerston North I’ll… hang on. You can afford to go to VENICE?????

    Your problems are not like our earth problems

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  22. Brian Smaller (4,000 comments) says:

    I took my family to Venice four years ago. Family business in the old country. Stayed in Santa Zaccharia just by the Palazzo Ducale di Venezia. It remains, as my Dad described it in 1945 when he and his mates from 22 battalion liberated it from the Germans- a city of sewers with no tops. But just off Piazza San Marco you can get the best hot chocolate drinks in the known galaxy.

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  23. slijmbal (1,216 comments) says:

    “This is incredible. This is the markets saying, we know your economic fundamentals are even worse than the USA’s. And that is pretty much the truth.”

    Exchange rates are more complicated than that – there is a level of correlation between our (real – excluding inflation) interest rates vs other countries’ interest rates and exchange rates for instance with the RB giving foreign investors almost a guaranteed exchange return on top of their interest returns as they go through the regular up and down cycles of interest rates. Also there’s been a flight away from perceived risk to perceived safety and a small place like NZ is seen as more risky.

    The long term average is typically about 55c so we are not that far below …

    Something like this drop back was very predictable – the speed of it not.

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  24. MT_Tinman (2,995 comments) says:

    I cashed my small supply of US$ yesterday.

    You can make rate can go up again now chaps.

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  25. BlueDevil (92 comments) says:

    Getstaffed – We do produce what the world wants – food, that why our exports went up in Jan.
    Pitty the Japanese Taiwanese and Koreans who now find no one wants their cars, computers, cameras and flatscreens.

    Kiwigreg – you are correct. Productivity comes from using more machines (capital) to get more goods from the same number of workers. A dairy farm milking twice as many cows using the same number of staff but better equipment is twice as productive and probably pays better.

    The ratio between cost of capital (interest rates) and cost of Labour (wages) is what drives productivity.
    Lower interest rates means more capital used – higher productivity
    Lower wages means more labour used (eg if 10 men with wheelbarrows are cheaper that 1 man and a bulldozer to shift the same amount of dirt) – lower productivity

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  26. georgebolwing (612 comments) says:

    BlueDevil

    I would suggest that New Zealand has a comparative advantage in three things: food, smart people and the tourist potential of New Zealand.

    We export all three.

    Capturing the returns from exporting smart people has alluded us for the moment. Cutting tax rates and government waste might be one way to get them back. Oh, and stopping calling them rich pricks would help.

    “A dairy farm milking twice as many cows using the same number of staff but better equipment is twice as productive and probably pays better” should be amended slightly to “A dairy farm milking twice as many cows using the same number of staff but better equipment is twice as productive and will pay their more productive workers more, provided they are not party to a collective employment contract that has divorced wages from productivity”.

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  27. PhilBest (5,117 comments) says:

    You said it, GeorgeBolwing at 1.24; and at 4.15. I wish that could be on the front page of every newspaper every day until Kiwis have learned.

    Dime, “Yanks bring their money home” would work if they were NET creditors. They are not; but they are not as bad as NZ-ers. And you are quite right about the Japanese money leaving NZ. There is a lot of Japanese money that can leave, and a long way for the NZ dollar to fall yet as a consequence.

    The major net creditor nations in the world are Japan, China, Saudi Arabia, and Switzerland.

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  28. side show bob (3,660 comments) says:

    BlueDevil “A dairy farm milking twice as many cows using the same number of staff but better equipment is twice as productive and probably pays better” . Not at the moment I’m afraid it’s not that easy Bluedevil you can have the best equipment in the world but if you can’t feed the extra animals it’s all rather mote. They will be many farmers pulling their hair out in frustration , the falling dollar has basically put an end to milking those extra cows as it has become to expensive, from imported feed to fertiliser, to fuel and equipment. The dairy industry in the US is in dire straits at the moment simply because of high costs especially feed costs. Many New Zealand farmers have gone down the same path and it is now biting them in the arse. Our strengths lie in pasture based feed systems not imported feed, at least the falling dollar may make our products more attractive. Fonterra may have to start concentrating more on commodities then it’s value added dogma because if the whole world is watching every dollar only the very rich will go and buy that special cheese, most will be happy with the basics.

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  29. BlueDevil (92 comments) says:

    You are confusing productivity and profit.
    Productivity is purely the change in output per worker.
    Increased productivity doesn’t guarantee a profit. Making more of a loss making product or one no one wants to buy will still send you bankrupt even if it takes less labour to make each one.

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  30. TimG_Oz (917 comments) says:

    Murray & Phil – the good news is that Palmerston North is now expecting to be inundated with Venetian tourists. Ah … the Square, the Wind farm, the … ah … Square, so much to do.

    Rocks the hell out of seeing David’s nuts (that’s Michelangelo’s David I’m referring to)

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  31. berend (1,634 comments) says:

    Supposedly Iceland went bankrupt when it’s crona dropped by 2/3. That’s at a level of about 27 cents. We’ve dropped by 1/3 so far. And our own federal reserve banker will make sure we’ll be dropping a lot towards that 2/3s in March 12.

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  32. adc (534 comments) says:

    sweet. I love it. Keep going down.

    We don’t bring money (value) into the country by importing. We do it by exporting. Exporters have been in agony for ages with the recent high dollar.

    Lucky the price of oil tanked with our dollar tho!

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  33. Glutaemus Maximus (2,207 comments) says:

    The world consumers have got enough of what they need.

    It is now about what they want. The rest aren’t going to be in the conspicuous consumption game. No money.

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  34. OECD rank 22 kiwi (2,812 comments) says:

    How low can she go?

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  35. Phil (125 comments) says:

    Murray & TimG_Oz

    The best bit; my employer is paying to get me half-way (to an international training course) and I’m just piggy-backing the other half of the trip.

    The bad news is that the transit is via Mumbai. I’ve been to Palmy before, so am assuming I’ve built up a natural resistance to third world diseases already.

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