US dollar

April 11th, 2013 at 11:00 am by David Farrar

Stuff reports:

The New Zealand dollar is eyeing the US86-cent mark today as it continues its relentless drive upwards.

Actually it is more a relentless drive down by the US dollar. The Australian dollar is now worth more than US$1.05 and the NZ dollar is still historically low compared to the Australian dollar at 81c.

We could join the US and Europe and Japan in printing more money to devalue our national wealth. But guess what – that just makes us all poorer, and will make the wage gap with Australia even bigger.

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29 Responses to “US dollar”

  1. markm (113 comments) says:

    David Shearer will be very happy that his comments about the currency being to low, have been listened to by the market

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  2. beautox (420 comments) says:

    wtf am I an exporter for?

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  3. Jack5 (5,055 comments) says:

    The little Pacific mouse called NZ is about to be trampled by the economic elephants.

    Why blame just the US? China has been holding down its currency for decades. Germany, through the euro, has held its currency down. Japan did and is again. Funny how the economic up and coming countries are pragmatic on this issue.

    Currency outfits are advertising on New Zealand radio for mums and dads to get into currency speculation. NZ is drunk!

    Our monetary purists are culpable, though they are being egged on by our trading banks who are clipping the ticket as funds pour into the country lifting the kiwi. Meanwhile, the hapless Reserve Bank of NZ and our politicians are Boer War colonels blundering their command of squadrons of modern drones.

    Switzerland, with its successful and so far profitable cap, and the highly capitalist but pragmatic Singapore and Hong Kong, with their currency baskets, are other small countries that show how we could defend ourselves in the currency wars.

    I’m disappointed that National could be digging its own grave with its currency inaction. It seems to have painted itself into a corner, with Opposition parties fixing it in people’s minds as the high-kiwi-dollar party.

    Interesting piece on the NZ dollar in the Hooerald by David Chaplin – link:

    http://www.nzherald.co.nz/business-editors-picks/news/article.cfm?c_id=1501981&objectid=10876639

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  4. OECD rank 22 kiwi (2,746 comments) says:

    But guess what – that just makes us all poorer, and will make the wage gap with Australia even bigger.

    So no downside then.

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  5. liarbors a joke (1,069 comments) says:

    Great stuff…off overseas shortly..cha ching !

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  6. anonymouse (710 comments) says:

    David Shearer will be very happy that his comments about the currency being to low, have been listened to by the market

    Mr Shearer will be also watching his little Chase Manhattan nest egg slowly melt away as it gets less than 1% interest and is gobbled up by the rising Kiwi

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  7. Fisiani (1,032 comments) says:

    The rise in the NZ dollar against the US dollar reflects the market view that the New Zealand economy is starting to boom.
    Given that our main export markets are Australia and China the prospects for exporters earnings are great.
    Importers of goods from the US , Europe and Japan will all be saving money.
    Overseas debt in US dollars can be repaid more cheaply.
    Remember 2008 when the forecast left by Labour was for never ending and increasing deficits…..a la Greece!
    Bill English has not been given enough credit for rescuing New Zealand from economic collapse .

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  8. virtualmark (1,513 comments) says:

    Jack5, you need to breathe through your nose for a moment. The two main factors driving our dollar at the moment are:

    (1) the NZ Government’s accounts look fairly good compared to nearly any other set of public accounts in the world. NZ, Aussie and Canada had effectively balanced budgets pre-GFC, escaped the worst of the GFC, didn’t have to cripple themselves bailing out their banks. As a result we are a relative safe haven for people to put their money into; and
    (2) our OCR rate is relatively high by world standards, largely because the only way to stop Kiwis from over-investing in residential property is to throttle the demand with high interest rates.

    So we are a safe and high-yielding country – at a time when most other economies are unsafe and low-yielding but are handing out free money.

    So what do you suggest we do? Should we beggar ourselves in an attempt to make our economy unsafe as well? To stop people putting their money here?

    Personally, what we should be doing is rapidly introducing some new levers to throttle back the residential property market. Tighter loan to value ratios and a capital gains tax on investment properties would start you down that track. And lose you an election as first home buyers complain about not being able to get a mortgage, and as Mums & Dads with an investment property claim you’ve stolen their birthright.

    Frankly, our currently high exchange rate is largely the price we pay for being so in love with residential property. And until (1) Kiwis are prepared to wean themselves off that, and/or (2) the rest of the world recovers economically, then the exchange rate is going to stay stubbornly high.

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  9. dime (9,869 comments) says:

    6 months ago we were .76 to the aussie and they were around 1.05 to the US.

    virtualmark – your idea is a new tax? well arent you awesome!

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  10. virtualmark (1,513 comments) says:

    dime … I know you’ve just gone long on more property. So I understand your reaction.

    But let me be more specific. If I was King of New Zealand I would introduce a CGT, with a broad base and a low rate, and I would offset it by a programme of steadily reducing income tax rates as the CGT income built up. I’d aim to keep the total tax take constant on a “percent of GDP” basis.

    My rationale for having a CGT is that at the moment we tax different asset classes very differently … residential property gets practically a free ride and so rational Mums & Dads pile in, buy a lot of it, and bid up its price. So the price of housing climbs higher than it should do.

    Meanwhile we’re starving other sectors of our economy of capital (because the equity capital is largely going into housing). And we push up our exchange rate (because the funding for the mortgages largely comes in from overseas, and so has to buy NZD in order to get here). Neither of those effects is good for the economy as a whole (witness our exchange rate)

    That said, I willingly acknowledge that countries with CGTs also have housing price bubbles, so it’s not likely to be a perfect cure. And for several reasons I can’t see the value of residential properties falling … the best we could hope for is for them to go sideways in nominal terms for a long period.

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  11. greenjacket (460 comments) says:

    Jack5: Exactly HOW does New Zealand lower its exchange rate relative to the USD and Euro?
    It is weird that you refer to Singapore as a model – the Singpore currency has appreciated against the USD just like the NZD has.

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  12. dime (9,869 comments) says:

    virtualmark – im against all new taxes.

    if you wer ethe king of NZ eventually youd die, a left wing govt would jack the rates of income tax and CGT cause they cant help themselves.

    personally, id send a strong signal to the market – we are opening up a lot of land. 250,000 new houses coming online in auckland in the next x amount of years.

    hell, sell some crown land at cheap prices. sections for 150k.

    supply until the demand comes back to sane levels

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  13. anonymouse (710 comments) says:

    @jack 5, the HKD is pegged to the US,

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  14. virtualmark (1,513 comments) says:

    dime. Yep, that too.

    By “King of New Zealand” I meant “someone who could make decisions but didn’t have to worry about winning another election”. I can’t see any of our current politicians having the cojones to rein in the property market … it’s too close and dear to too many voters.

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  15. virtualmark (1,513 comments) says:

    dime. I’d also like to see the banks having to hold a lot more equity capital. At the moment the Basel rules mean they fund about 10%(?) of their risk-weighted liabilities with equity, and the other 90% with debt (deposits, short-term borrowings, long-term borrowings).

    If they had to fund, say, 30% with equity then (1) they’d be more robust in a crisis and (2) they’d probably be more careful about their lending given the cost of equity is higher than the cost of debt. Interest rates would probably rise a little (to fund that cost of equity), and NZ Inc’s international borrowings would fall. Good for our exchange rate all round.

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  16. lazza (381 comments) says:

    The US/Kiwi cross dollar exchange rate would be less of a bogey for our export’s-oriented economy if:

    1. We managed our international currency trading in a rough proportion to our level of trade with our trading partners. For example, only trade in $US to the rough proportion that NZ deals in exports with them

    2. We encourage agreements, such as Australia and NZ have recently done with dealing directly for Chinese trade using the Chinese currency/Oz- Kiwi dollars cross, thereby neutralising (somewhat) the existing $US currency-exchange risk exposure.

    3. Make things as “uncomfortable” as is legally possible for “The Wide Boys” who bid up the $NZ using the $Kiwi as a means of exchange, speculating in currency risk. (Lots of innovative ideas here!).

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  17. Viking2 (11,420 comments) says:

    So you think the property market is booming then.

    http://www.sunlive.co.nz/news/41740-tauranga-property-values-static.html

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  18. virtualmark (1,513 comments) says:

    Viking2. Yep.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10876534
    http://www.interest.co.nz/property/63909/qv-says-national-house-prices-65-past-year-auckland-11-rate-growth-might-be-slowing-n

    But sure, it’s not evenly spread around the country.

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  19. wreck1080 (3,885 comments) says:

    The results of all that money printing is for large cash injections into New Zealand at cheap rates for people to borrow to buy houses in Auckland & Christchurch.

    You can see an impending disaster when NZ experiences an economic downturns.

    Although, Auckland is a little different in that there are also supply constraints.

    But, really, NZ is becoming an untenable place to live.

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  20. dime (9,869 comments) says:

    V2 – Its booming auckland. that is the problem. Dime has made a fortune in the last 6 months.

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  21. smttc (742 comments) says:

    Viking2

    Tauranga is the market which proves the relationship between supply and demand and property prices/values.

    There is shit load of subdivided sections available foir immediate purchase/development in Tauranga.

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  22. tvb (4,366 comments) says:

    This is more a US problem than a strong NZ dollar. For every exporter moaning about selling escorts in US dollars there are importers especially oil who are enjoying the high dollar.

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  23. Jack5 (5,055 comments) says:

    Greenjacket posted at 11.54:

    …Exactly HOW does New Zealand lower its exchange rate relative to the USD and Euro?
    It is weird that you refer to Singapore as a model – the Singpore currency has appreciated against the USD just like the NZD has…

    Greenjacket, we’ve been talking about this for yonks. Again, look at the successful and so far profitable cap the Swiss national bank has put on its national currency. Or look at Singapore.

    Singapore’s currency is fixed against a basket of currencies while NZ’s floats. Singapore, a thoroughly successful export nation. At December 31 it had reserves of foreign exchange and gold of $259 billion. Compare NZ with that.

    From my figures, the NZ dollar has risem 27.27 per cent against the US dollar since 2009, while the basket has buffered Singapore, so that its currency against the US dollar rose 14.88 per cent, which is about half the NZ rate.

    Details:
    Estimate:
    Singapore dollars to US dollars:
    Today: 1.238;
    2012: 1.253;
    2011: 1.258;
    2010: 1.3635
    2009: 1.4545

    NZ dollars to US dollars:
    Today: 1.1637;
    2012: 1.289
    2011: 1.263
    2010: 1.3874
    2009: 1.6002.

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  24. Jack5 (5,055 comments) says:

    ^^^^^
    Anonymouse posted at 12.07:

    …The HKD is pegged to the US..

    So?

    They’re doing better for their exporters than NZ is doing with its NZ dollar. While NZ’s balance of payments deficit for 2012 was 5 per cent looks likely to worsen, Hong Kong’s balance of payments surplus for 2012 was 7 per cent and was improving in the fourth quarter.

    Hong Kong has a currency board. The Hong Kong Monetary Authority buys US dollars when the Hong Kong currency pushes up against the top of its trading band which is $US1 to 7.75 Hong Kong dollars.. The lower limit of the trading band is 7.85 Hong Kong dollars.

    NZ’s centre-left monetarists seem to be arguing that a free floating currency is absolutely and necessarily the optimum path for prosperity even during these times of high turmoil in world currency markets.

    Singapore, Hong Kong, and Switzerland are bustling capitalist countries, more successful economically than NZ, they indicate the centre-left’s (that is National’s) argument is wrong.

    Also, for an explanation of Singapore’s system of managing currency compared with NZ’s free float, glance at this document:

    http://www.mas.gov.sg/~/media/manual%20migration/Monographs/exchangePolicy.pdf

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  25. Alan Johnstone (1,087 comments) says:

    All this talk about the housing market is just sick theater.

    Ask a person if they think that it’s too hard for first time buyers and they’ll say “yes”, ask the same person if they think the value of the house they purchased 2 years ago should fall by 20% plunging them into negative equity then you get a different answer.

    It is in the interest of those without home ownership to want to lower its cost, and for those how have it to largely maintain it. I’m abstractly happy for the value of someone else house to fall, but not mine.

    We’re all economic nimbys.

    Hence the farce being played out in front of us

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  26. pq (728 comments) says:

    Quote Farrar

    “We could join the US and Europe and Japan in printing more money to devalue our national wealth. But guess what – that just makes us all poorer, and will make the wage gap with Australia even bigger”

    As I come into contact with NZ First people, I remind them that to favour the exporter and artificially lower the value of $NZ is against the interest of their voters. To artificially drop the $NZ is against all our interests, it is the lazy failure way.
    I have a meeting with Dennis O’Rourke [ NZ First Christchurch ] on Immigration matters , and I will give him in writing my prediction that NZ First must fail within a sickly, money printing , Labour Government.
    I have said elsewhere that my family will be putting our very small money overseas prior to the election. Most likely Canada.
    If NZ Nat wins and the dollar escalates good news.

    I have heard some people say that NZ Conservative would like a seat, but I think we just have to tough this thing out. I bet I am like thousands of potential NZ First voters who have lurched away when I heard the nonsense about compulsory asset repurchase , and money printing, and lowering dollar down the drain

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  27. pq (728 comments) says:

    I think currencies pegged to USA are asking for trouble
    $Australia today = $USA 1.05
    $Canada today = $USA 0.99
    the China Yuan is steadily increasing against the $USA, but everyone knows that is because the China currency misuse
    its people at low wages
    The USA been steadily declining for some years. Any reference to USA currency is becoming meaningless.
    The way downwards is to devalue or follow another currency

    No devaluation NZ.
    No printing money NZ
    Vote out parties who want the slack way out. NZ First lets give us to Labour and Green.
    It will not last one year.
    Our country would be decimated by a Labour/ Green/ NZ First Coalition

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  28. Paulus (2,608 comments) says:

    FFS do these experts on a Capital Gains Tax not realise that it will take 15 years to break even at the earliest.
    Administratively it will not break even for that period of time.
    By that time many will have learnt how to avoid it.
    UNLESS you put it on the family home too.
    Look how long it took the UK to get any gain – many years – yes I was there at the time when introduced and Lawyers and Accountants were setting up schemes off the shelf to avoid it.
    Ther already is a CGT in New Zealand – it needs to be policed properly.

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  29. virtualmark (1,513 comments) says:

    Paulus,

    I was the first one in this thread to raise the CGT idea, and I said:

    If I was King of New Zealand I would introduce a CGT, with a broad base and a low rate, and I would offset it by a programme of steadily reducing income tax rates as the CGT income built up. I’d aim to keep the total tax take constant on a “percent of GDP” basis.

    Yes, I agree a CGT would take many years to raise material amounts of tax … which is why I said “steadily reducing income tax rates as the CGT income built up”.

    BUT, what would change almost immediately on introducing a CGT is peoples’ behaviours.

    And, I absolutely agree with you that IRD needs to enforce our current CGT provisions much more than they currently do.

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