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June 11, 2007 12:16pm by David Farrar

Dollar hits 76c

The dollar has broken through the 76c barrier.

As one can see this is a new post-flat high.

Also a fairly clear trend for exporters in recent years.

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New Zealand

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mikeybill

I know this will count as ancient history for many, but I seem to recall being told that the NZ$ was worth about US$ 1.25 in the 1960s. Is that true?
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June 11, 2007 1:32pm
Ross Nixon

The NZ dollar isn’t necessarily going up. It’s more the US$ going down.

Perhaps there should be a graph of the TWI (trade weighted index) instead?
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June 11, 2007 1:33pm
Uroskin

Yes, TWI is a much better gauge of what the NZ$ is doing, instead of the unidimensional graph of US$-NZ$. Quite a few other currencies have risen too against the US$ so it’s more a case of the US$ trending down. With the levels of trade imbalances affecting the USS economy it’s a “natural” response to bring those imbalances back into line; the recent surprise trade figures of the US show an ameliorating effect of a lower US$ on their deficit.
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June 11, 2007 1:58pm
David Farrar

The TWI is also at a post float high of above 70.

In 2001, it was below 50.
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June 11, 2007 2:21pm
gd

mikeybill I was trading the greenback in 1980 when it was $1.05 to the kiwi and in the mid 70s sterling was $1.69 and going back to the early 70s bought 440 yen to the dollar.Ahh the good old days
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June 11, 2007 2:45pm
Chuck Bird

mikeybill, it is true. I remember it.
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June 11, 2007 3:01pm
Adolf Fiinkensein

And these idiots are bleating about the forthcoming dairy industry pay out, calling it inflationary. You know The Mad hatter’s in charge when earning export income is deemed a harmful activity. A couple more interest rate rises and an US$0.85 kiwi dollar will strip away the cow cockies’ pay rise just as they are holding out their hands for it. Labour will hold only one seat at the next election, Mangere.

Woopeee David! A spell checker!!!!
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June 11, 2007 3:17pm
Sam Dixon

DPF-

Really would be better comparing NZD$ to the TWI. As it is, these graphs say as much about the strength of the US economy as NZ’s.

General pattern economic theory expects is the currency to rise when the economy is strong, and that appears to be what has happened, strong rise from 1999, a wee dip in 2006.
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June 11, 2007 3:25pm
baxter

If you want to go back to the forties and early 50s the US$ was equivalent to 50cNZ and the NZ pound was about 25% higher than the Aussie pound but our currency was fixed and our meat and wool had guaranteed markets and we always had balance of payments credits. Generally you needed to have a import permit to import anything.
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June 11, 2007 3:27pm
anonymouse

RNBZ has just sold NZ dollars , knocked about 1c off the currency, hope the move doesn’t attract the sharks
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June 11, 2007 4:14pm
tim barclay

Bollard has just intervened in the Kiwi and has told the entire world what his tolerance level is. So it is game-on for the international currency speculators v’s Bollard. Guess who will win.
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June 11, 2007 4:18pm
Nominal

I see that the RBNZ is busy selling NZ$. I don’t know that it will make much difference – even state reserves are usually too low to make a sustained play in currency markets. I agree Adolf, a strong currency should be sought, not avoided.

Apparently the govt thinks that increasing OECD status can be obtained by tax/spend and that exporting is a bad idea. What?
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June 11, 2007 4:18pm
Sam Dixon

I don’t like the RB’s chance of beating the market, and failure must carry with it risks for credibility and a higher currency.

The dollar ahs shot up because Bollard surprised for the first time on the high side when he moved the OCR last week – for the first time he looks determined in terms of rate rises – threatening for home buyers, encouraging for currency dealers.
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June 11, 2007 4:42pm
David Farrar

Sam – did you miss my comment that the TWI was also at a post flat high?
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June 11, 2007 4:44pm
nissan

NZ should dump the US$ and fixed to the EUro

The Ureo is more stable and not backed by worthless paper.
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June 11, 2007 4:52pm
nissan

NZ should dump the US$ and fixed to the EUro

The euro is more stable and not backed by worthless paper.
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June 11, 2007 4:53pm
anonymouse

err, we dont have the US dollar to Dump, the NZD free floats against all. USD and Euro included well it used too!)
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June 11, 2007 4:56pm
nissan

They have sold off currency . The start of the end of a commodity of NZ$ More taxpayer losses.
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June 11, 2007 6:03pm
Sinner

The headline should read: Cullen bets all NZ’s assets againt Soros

This is something Key knows lots and lots about. Far more than Cullen, far more than Bollard. Cullen has sold NZ down the river, and literaly bet the farm, the schools, and health service, and all our houses and retirement savings on thinking he can out-bid the rest of the whole word.

Completely, utterly, nuts!

John Key should explain this tomorrow, and call for a vote of no confidence and Helen, Cullen, and Bollard.

Correction in the housing market” means MIllions of Honest, Hardweorking Kiwis lose all their money and give it to bludging beneficiaries.

There is now no way to avoid massive cuts to “government services” in NZ. Health, Education, not to mention fripperies like Radio, TV, Railways, Roading and all the rest will now go at bargain basement rates. The only quetsion is: will this be done under common sense control, by John Key — or in a fire sale to try and extract any value from the wreckage of the entire economy by labour

If labour had not stolen the election this mess would never have happened. Now Cullen and Bollard have taken our houses, our schools, our hospitals, and put them on the international roulette board against the richest currency traders and companies in the entire world. The question is not whether he will lose. The only quetsion is: how much

After all, he’s got 20 Million of our money to gamble with.
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June 11, 2007 6:13pm
dad4justice

20 Million is dog tucker mate !!
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June 11, 2007 7:10pm
Adolf Fiinkensein

How interesting that it is 20 years since the last RBNZ currency intervention. Now lets see? When was that? Oh yes, 1987. What do I remember about 1987? A devastating sharemarket crash.

Hold on to your seats, chaps. Here comes the next one.

We’ll see the property bubble burst within six months, stock market devalued by 40% and an early election before March next year.

You’d better get in and sell first thing tomorrow morning.
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June 11, 2007 7:16pm
dave

Now, lets do something about those interest rates. Before Labour loses the election and National slashes Govt spending to pay for tax cuts and increased unemployment benefits
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June 11, 2007 7:42pm
Selma Bouvier

Things have never been so good since the 1960’s. Yet Sinner screams ‘wreckage’.( coming soon) .
Yawn they said all this in 2000.

Yet who managed TWO recessions in their time in office in the 90s’
Not that they were responsible….
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June 11, 2007 8:07pm
NX

Quite simply we need Dr Brash.
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June 11, 2007 8:08pm
tim barclay

Cullen denies any knowledge on this foolish piece of intervention of Bollards. Clark should be asked by Key if she is prepared to sanction placing the entire Cullen fund as a “bet” against the speculators, on the NZ currency not going up. The silly cow would not have a clue on how to answer that one.
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June 11, 2007 8:48pm
JohnSmith

Now that’s strange of the RBNZ…

In trying to drive the Kiwi down RBNZ is going to sell Kiwi in the open market. Which means the RBNZ has to increase the money supply of Kiwi, which is easy since the Bank can just print more Kiwi, but the problem is that this will cause inflation…. which I thought is the very thing Bollard is trying to control!?!

Why doesn’t Bollard just cut the OCR by half to undercut other currencies and drive out the curry traders? That way, long term fixed interest loans will get expensive, which will cool the housing market as the majority of mortgages are fixed in NZ.

Yes, people will get more cash in hand as the interest rate lowers, but imports will get more expensive as well, so people might not spend more.
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June 11, 2007 8:52pm
JohnSmith

Btw people… what Bollard has done isn’t that risky in terms of losing money. As trying to drive down your own currency is much easier than the other way round, since you can just print more of your own currency instead of betting on your own reserve. The major flip side is that you increase your money supply, which will drive up inflation.

So Sinner, don’t worry about RBNZ losing money in this, RBNZ will instead increase its foreign reserve, and make the Cullen Fund worth even more in $NZ terms.

But the inflation…
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June 11, 2007 9:04pm
DS

Good grief, some of our resident Tories must be on acid or something. The 1987 crash caused by NZ currency intervention? Do you even have the faintest recollection of a certain place called “Wall Street” in October ’87?

Also, in case you didn’t notice, what the Reserve Bank is trying to do is sell down the NZ dollar from its existing absurdly high levels. Do you think international currency traders are that stupid that they’re prepared to get into a fight with a Reserve Bank just to get their hands on what they already know is a seriously overvalued currency? Currency traders beat Reserve Banks when the latter is trying to *defend* an insane exchange rate, not when the Reserve Bank is trying to correct it.

The hysterical ravings eminating from the likes of Adolf and Sinner really makes me wonder if they have the remotest clue what they’re actually talking about.
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June 11, 2007 9:07pm
JohnSmith

DS

I think you need to give an Open Market Operations / FX Market 101 lecture for some of the posters here 🙂
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June 11, 2007 9:21pm
Adolf Fiinkensein

Before some of our resident socialist theorists get carried away with the sounds of their own echoing voices they might like to recall that the currency traders whose innermost thought processes they claim to know initmately might just be betting on our ever increasing interest rates pushing up demand for our vastly over inflated currency, NO MATTER how many newly created inflationary dollars our puny RBNZ creates and sells.

It is the inflation created by this desperate move which in my opinion represents a huge risk to out economic stability. Not for nothing did the National/ANZ chief economist say at least four times this evening on RAdio NAtional ‘this strategy is not without risk.’

But of course a few socialist bloggers know better. You’ll be laughing on the other side of your faces if I’m right and I rechon the odds currently are about 70% in my favour. Do you have any idea how to calculate odds or to measure risk? Ideology won’t help you when the shit hits the fan.
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June 11, 2007 9:52pm
dad4justice

Adolf – I bet 20 million gone by morning – you buy the jug .
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June 11, 2007 10:00pm
JohnSmith

d4j

20 million of what? Kiwi dollars? USD?

Selling your own currency (by the Central Bank) won’t lose you money… driving inflation up is another thing.
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June 11, 2007 10:11pm
dad4justice

Keep selling currency and see what happens dickhead !
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June 11, 2007 10:14pm
JohnSmith

I’m not saying that what Bollard has done is a good thing or not. What I’m saying is that the risk is inflation, not losing NZD per se.
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June 11, 2007 10:27pm
Sinner

No, they’re not printing more currency.
They’re betting the reserve, the “surplus”, backed by govt assets.
Basically betting the hosues of everyone in NZ

Again: its is now completly clear that the only remedy is a snap election – – or, as I’d prefer — the support parties to fall in behind John Key
(who unlike Brash, has experience as a currency trader on the other side of the fence).

The only way to resolve this problem is to immediately and drastically reduce the size of the govt sector in NZ. And this can be done easily, we have the lessons from the last time National had to did out Labour’s mess: we know how to do it. For ideological reasons, Labour cannot act. Someone must ensure that John Key does – before we have absolutely no hope and all, and the entire country (rather than just the brightest and best) begs to Peter Costello to bail us out!
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June 11, 2007 10:27pm
sam dixon

Adolf, D4J –

The Reserve Bank isn’t printing new bills for this intervention, its using its reserves, how ignorant are you?

And do the maths, for once, a successful currency intervention makes the govt money. the RB sells NZD$20 million for USD ar at exchange reate of NZD$1 = $USD%0.76. It gets USD$15.2 million, it later converts the money back to NZD at, say an exchange rate of 70 cents – it has NZD$22 million… it has made money.

Now, if the intervention is not sucessful, ie the currency does not drop, well, it would not get as much in NZD but the RB can keep holding on to the USD as part of its foreign currency reserves.

– don’t know where your $20 million figure came from, it was $1.5 billion.

– If the RB could convert that $1.5billion back to NZD right now at 75 cents, it would make $20 million.
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June 11, 2007 10:38pm
Bello

As someone who has had over 20 years in the markets I think I can add some sense to some of the emotion in this debate.
The RBNZ is not using reserves, that would only be if they bought NZD.
The RBNZ can and will neutralize the inflationary impact of the added NZD liquidity by borrowing the funds sold back from the market.
They will not attempt to battle all comers to protect a certain rate, the objective will be to make the NZD seem less of a one way bet.
The high kiwi is simply the end result of a very lopsided economy, savings way too low, tax advantages for housing assets distorting investment, high immigration (at times) and savings that are way too low (repeated on purpose.
The Clark government can be roundly criticised for being too slow to tackle these issues, but then which NZ government will ever tackle our housing fetish?
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June 11, 2007 11:07pm
dad4justice

Sam Dixon I was only stating what the dude Garth Morgan said on TV , I think he would know about a dog tucker money fuck up than you, please excuse the language but Kullen and Klark must step down now, as they have lost the plot !!

You are trained as a lawyer, so what would you know ( remember you went to law school with Michael Laws )
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June 11, 2007 11:17pm
sonic

Hi Adolf, I always take my financial advice from people who cannot even budget to keep their blog open, so thanks for the update.
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June 12, 2007 12:40am
SPC

The RB Governors once in 20 years play is a call to government attention re the structural imbalance.

The intervention need not be “inflationary”, as the RB Governor can tighten elsewhere to compensate.

As for losing money – it could be argued that the RB is “investing for profit” in foreign currencies. Given he sets the OCR now and later I expect him to “make money”. Whether he achieves his currency value goal as well is another matter.
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June 12, 2007 12:58am
woppo

” You’ll be laughing on the other side of your faces if I’m right and I rechon the odds currently are about 70% in my favour.”

If you are, it’ll be due to luck and nothing more – unless you’re a different Adolf Finkelstein from the one who happily predicted that the bulk of US troops would be home from Iraq in time to ensure a sweeping Republican victory in the November 2006 Congressional elections.
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June 12, 2007 5:16am
Sam Dixon

Bello –

the RB is not directly using its reserves but fact remains, the RB is not simply making new moeny out of thin air, which would be purely inflatioanry.

D4J –

My training and experience is not limited to the law. And don’t call me a fuck up – any objective comparison of our lives would show who that is.
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June 12, 2007 9:41am
Andrew W

With the strong rise in international dairy prices the Kiwi will continue to be well supported, those who are really going to be hurt are other NZ exporters.
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June 12, 2007 10:50am

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