The unstoppable Kiwi?

July 23rd, 2011 at 12:00 pm by David Farrar

Christopher Adams at NZ Herald reports:

Currency experts are not ruling out the possibility of a seemingly unstoppable New Zealand dollar reaching parity – or equal value – with the US currency.

That would be great news for Kiwis planning a trip overseas, but a nightmare situation for many exporters. And adding to the pain, the kiwi is also making ground against the Australian dollar.

So where is the NZ$ against various currencies. Let’s take them in turn.

US – currently at 86.22c. Previous high (before 2011) was 81.76 in 2008.

UK – currently at 52.83p. Previous high (before 2011) was 49.94 on 31 Dec 2010

AU – currently at 79.58c. The high was 95.54c in Dec 2005 so a long way off the high

JP – currently at 67.67. The high was 97.62 in Jul 2007 so huge way off the high

EU – currently at 59.83c. The high was 60.92c in Dec 2005 so close to the high currently.

TWI – currently at 73.7. The high was 76.9 in Jul 2007 so some way away from the high

I still regard this as more of a story about the US and UK currencies being so weak because they have such huge fiscal deficits, than about the Kiwi being unstoppable.

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23 Responses to “The unstoppable Kiwi?”

  1. Adolf Fiinkensein (2,811 comments) says:

    Absolutely agree with you final comment.

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  2. dog_eat_dog (757 comments) says:

    Correct weight, David. This won’t stop people who can’t understand that New Zealand isn’t in a position to dictate global currency trading and the prevailing global economic conditions dictate both our currency rates AND the amount of luxury goods that overseas consumers can buy. Someone should point this out to the hysterical people who keep saying the Government should ‘do something’ about our currency to help our exporters. I’m not sure our exporters would like to be paying the increased margins arising from increasing fuel costs that our high dollar thankfully is insulating us from. Come on Labour, tell us how that would be good for low income earners.

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  3. Ed Snack (1,773 comments) says:

    I too agree that it is far less than a case of a strong kiwi than a weak US$ (and after two huge rounds of money printing aka “quantative easing”) and a Euro beset by an internal crisis over the PIIGS that threatens to spread. However the current rates are making life very difficult for some if not all exporters. The meat industry for one is in a real bind with overseas prices softening, they’re on the verge of a possible real period of stress.

    And NZ has inflationary issues that would seem to be demanding at least a modest hike in interest rates although a good deal of the pressure is either seasonal (food prices caused by difficult growing conditions both here and Australia) or one off (GST changes) items. And wage pressures are growing too. Difficult times ahead, no wonder Gold is looking so strong.

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  4. Falafulu Fisi (2,176 comments) says:

    Currency experts may be interested in the following.

    DETRENDED FLUCTUATION ANALYSIS OF THE FOREIGN EXCHANGE MARKET

    DFA (detrended-fluctuation-analysis) is very useful in multiple time-series analysis (as in economics). Its a method that been used mainly by physicists for time-series data analysis in particle physics experiments, but I have seen the method in recent years being applied to economics/finance by by researchers in those domains.

    PS : If any currency expert here, who is interested to find out more of to use it in currency time-series analysis, then indicate back here, so I can send you more info (ie, publications) on the topic or even send you my software codes (standard algorithm only – as DFA has more advanced/robust variants which I won’t share it).

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  5. Bob (490 comments) says:

    I agree our currency is high against weak foreign currencies. If it was strong due to a strong nz economy we would all be feeling better off. If as has been suggested the OCR should rise the dollar will go up higher still. Reaching parity with the $US is a bit far fetched though.

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  6. berend (1,671 comments) says:

    DPF, plot the kiwi dollar versus gold or silver. That a better indication of its real value.

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  7. marathonmilk (9 comments) says:

    I’m with you on this one. I depend on a weak dollar (compared to the US in particular) for income, but I do find the whole situation extremely fascinating. It’ll be interesting to see what happens.

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  8. Viking2 (11,217 comments) says:

    That’s right.
    It costs everyone more to just live so the brain boxes that call themselves economists consider we should up the interest rates on mortgages and business lending so we can all go broke and leave the banks with more mortgagee sales.
    What a fucking stupid set of logic. DUR.

    In fact there is a case for dropping interest rates so that the economy doesn’t go further into free fall from higher exchange rates and depressed demand.
    Anyone know any company running at capacity currently?
    Other than lawyers and accountants of course.
    Anyone point to the Labour market being tight yet? Don’t think so.
    Anyone able to give an example of a bank lending money for business at cheap rates and without a Federal investigation of every man and his dog that the company have a relationship with?

    Lets stop kidding ourselves, we are still in the shit up to our necks, which is evidenced by borrowing $400 million PER WEEK and by the number of Kiwi’s leaving for offshore. Right up there again.

    The NZ dollar is the 12th most traded currency in the world. And It ain’t NZ companies doing all the trading.
    It ain’t even the amount we are borrowing, its the safe trading perception that the NZD has and the realization that our govt. won’t and indeed can’t influence what happens to its value.
    Interesting that our little currency is better regarded than so many others as a safe trade.
    Always thought that our traders needed to trade in the currency of their purchasers. Truer now than ever.

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  9. kaya (1,360 comments) says:

    I’m sick of listening to commentators dribbling on about the “strong kiwi”. By far the majority of this move in the dollar is due to the weakness of the others which has been caused by their printing money like toilet paper. (Which is likely to be worth more if/when QE3 comes on stream.)

    This highlights the fact that the financial system over the last 30 years has been hijacked by the big players (you know the ones, “too big to fail” duh…) and has become little more than a ponzi/pyramid scheme. Throwing QE money at those parasites and expecting to resolve your financial woes is like throwing buns to bears. They get fatter for no noticeable gain for anyone else.

    Ed Snack – inflation is usually caused by too much money chasing too few goods and services. Nothing could be further from the truth in this farcical situation. Any move try and change inflation by increasing interest rates would be insanity, but that doesn’t mean it won’t happen.

    What we are actually witnessing is a fatally flawed system breaking down. There are futile attempts being made to sort it out but it’s a bit like trying to heal a brain tumour with an aspirin. You can’t fix a debt problem by taking on more debt.

    NZ is at the mercy of the casino called the financial system. It’s very hard to see a painless resolution to this, at some point it is going to hurt a lot more than what we are seeing today.

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  10. Johnboy (15,390 comments) says:

    I think I shall sell my gold and buy US dollars about now! :)

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  11. Jimbob (641 comments) says:

    Long term the USD is toast. But I think you should remember what happened in 2007-2008 when the credit markets froze up. Debtors were scrambling to sell anything to pay off debt and asset prices plunged. That is deflation. So when the central bankers find out that they can not stop the debt mountain from collapsing, the Kiwi’s run will finish and head back to at least 60 cents US. Gold will drop also, maybe to $660 an ounce.
    Then when the turmoil is over, the sky is the limit for the Kiwi vs the USD

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  12. mavxp (494 comments) says:

    The Reserve Bank of NZ could print money too (or even just signal they are considering doing so) – that’d f*ck the confidence of overseas speculators, and the Kiwi will correct almost overnight.

    Add to that, a steep reduction in petrol tax would balance the effect on the local economy of a sudden drop in the value of our currency. The struggling exporters will then become profitable and our unemployment will drop as our competitiveness jumps.

    The government could do both things if they wanted to. But they wont – they’d be even more out of pocket without those taxes than they are currently.

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  13. Spiritfree (79 comments) says:

    Kaya: What we are actually witnessing is a fatally flawed system breaking down. There are futile attempts being made to sort it out but it’s a bit like trying to heal a brain tumour with an aspirin. You can’t fix a debt problem by taking on more debt.

    tick tick tick

    In the initial euphoria after the European deal for Greece, there were big sighs of relief, because that situation has the capacity to have far worse effects than the collapse of Lehman Brothers. But the Euro (the currency) is at the root of that problem and as most European politicians (not their electorates) are married to it, the situation will continue to rot. It only took 24 hours for the bond markets to realise that Spain and Italy are still up that creek and there’s no paddle big enough.

    The system is f**ked – there’s just been too much lending.

    The good thing for NZ is that populations are rising and everyone needs to eat.

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  14. Spiritfree (79 comments) says:

    This article is yet more proof of the fatally-flawed system breaking down.
    http://www.telegraph.co.uk/news/politics/8655106/Im-starting-to-think-that-the-Left-might-actually-be-right.html
    And if there’s anyone still foolish enough to think that CGT is a bad idea, they should read it.

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  15. krazykiwi (9,189 comments) says:

    @Spiritfree – “The system is f**ked – there’s just been too much lending.”

    Nope. There’s been too much borrowing. Mainly by succession of governments promising their target voter groups anything that will help get their party elected. Promise->spend->borrow -> promise->spend->borrow. Of course this creates lazy dependence on the benevolence of the state, reductions in productivity, and increases in the number of left-leaning ‘what will the govt do for me?’ voters accelerating the whole collapse. Witness the PIIGS.

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  16. kisekiman (224 comments) says:

    Unamed “currency experts” – isn’t this just a journalistic technique of spouting bullshit an attributing it to nameless others. Predicting future exchange rates is about as futile as Phil Goof trying to get elected as NZ next PM.

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  17. wreck1080 (3,784 comments) says:

    I think the kiwi could fall very rapidly too.

    We are just a cork bobbing along on the ocean, very little we can do about events going on around us.

    Our house prices are still very high, and our wages very low. So, it is not like we are going that greatly.

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  18. Griff (6,965 comments) says:

    This is just an other cycle remember 87 the whole system is f”””” we are all doomed

    The property market will have stigma like our share market for a while this is the major target of CGT and as proposed its got more holes than a sponge ..pointless

    Sell gold buy NZ shares ChCh was stimulus.

    The Chinese and Indians are still growing strongly and buying more food our farmers will be spending

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  19. holysheet (286 comments) says:

    When I took my first trip overseas to singapore in the mid 70′s, the $NZ was worth $US 1.10.
    So why not again?

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  20. starboard (2,489 comments) says:

    ..I still want to know why petrol hasnt reduced in price..the old story , dollar goes up steeply , fuel price doesnt move..dollar drops by 2 cents…BANG..fuel up 6 cents a litre. Where are you AA ? Oh thats right…knob polishing BP.

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  21. beautox (433 comments) says:

    >> I’m not sure our exporters would like to be paying the increased margins arising from increasing fuel costs that our high dollar thankfully is insulating us from

    You’re joking right? So I am meant to be pleased that my petrol is so cheap when my income is down 40% With the Obama-fueled recession, selling into the US is hard enough and our sales are well down even in US$ terms. Then to add insult to injury we have to cope with the exchange rate.

    Now I have to listen to pricks like this telling me I should be pleased the oil is cheap. Screw you.

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  22. wreck1080 (3,784 comments) says:

    petrol price generally determined by the following……

    Foreign price of oil.
    fx rate.
    Government taxes.
    Inflation.

    Price and fx rate fluctuate . If the price goes up by 20%, and the fx appreciates 10%, the pump price will still increase.

    then, you get people complaining about why the price is going up when the nzd is getting stronger.

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  23. calendar girl (1,195 comments) says:

    Possibly overlooked in this discussion is the pressure mounting on NZ’s inbound tourism sector. Even after accepting the high travel costs associated with NZ’s distance from their home countries, American, British and Continental visitors will find that NZ is becoming a much more expensive destination.

    The effects of that deterioration in NZ’s tourism competitiveness are far-reaching. As well as airlines, hotels / motels, internal transport and commercial sightseeing attractions, tourism has a major impact on the job-rich hospitality sector – pubs, takeaway outlets, cafes and restaurants.

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