Alexander is almost never right with predictions, in fact he's usually wrong! He's still saying property will drop 5-10% from its peak, its already dropped 7% and even conservative forecasters like the Reserve Bank are saying at least 15%.
Personally I pay much more note of Westpac's economists like Brendon O'Donovan.

If the RBNZ cuts the OCR 150bps on 4 December 2008 you can be assured the NZD/USD pair will visit a number below 0.5000.

The problem is costs of increasingly scare imported goods, due to a shipping crisis and world factory closures, will sky rocket over time.

The collapse to date has already seen the purchasing power of the NZD fall considerably against gold, a commodity bench mark.

I have taken the trouble to chart our demise to date here ( bottom graph): http://www.omo.co.nz/

Dosser

Can you explain the "safe haven status of USD" and "long term bullish trend in USD/EUR", I think the US economy is at far greater risk of major collapse than europe, the UE has dealt with being intermittently ravaged for centuries, the US has conniptions if a couple of buildings get felled.

Neven

Neven911 & Andy Rodgers,

The US has traditionally had a safe haven status in times of economic weakness - even when the US economy has been in the dog box too. My thinking is that the dominant trend for a while to come will be the repatriation of funds to carry trade funding currencies (including USD) and that Bernanke's expansion of the US monetary base will not keep up with the elimination, via deleveraging, of dollars originally created out of thin air by banks.

As Marc Chandler of Brown Brothers Harriman (who has been right for a while now) puts it:

"From another angle, perhaps the reason there has not been a major currency crisis yet is because what is happening in foreign exchange is a resolution of the larger financial crisis. At the heart of the financial crises lies leverage; the bizarro doppelgänger resulting from the miracle of compounding. Said leveraging was financed primarily with dollars, yen and to a lesser degree Swiss francs, and Hong Kong dollars.

Dollar and yen were borrowed and earned, converted and then lent far and wide. As a result there is a substantial short dollar and yen position that needs to be covered. The dollar and yen's strength are a reflection of a deadly serious global margin call. This is what their rising price is trying to allocate. Contrary to the argument of the permadollar bears, that sees a large surfeit of dollars in the world; what is being experienced now is a great dollar shortage. This is also a factor behind the higher dollar interest rates offshore. Short-term momentum traders have jumped aboard anticipating and amplifying the carnage.

Part of the leveraging is a currency mismatch. The current de-leveraging appears to be one of the most powerful forces that have propelled the dollar and yen higher. Just as the leveraging process helped drive the major foreign currencies except the yen to unprecedented high levels relative to robust measures of PPP (IMF/OECD), the deleveraging process is pushing the currencies, including the yen, back toward PPP. The sharp drop in sterling has pushed it back below its PPP measure, which is not surprising. PPP, as we know, does not represent support or resistance."

See also:

http://www.morganstanley.com/views/gef/archive/2008/20081124-Mon.html

Firstly i'd say no one really has a clue where currencies are going from here.

I believe the major piece of de-leveraging has come through but there will be further waves as we progress.

Given it's overseas debt exposure and trade deficit, its hard to see the kiwi strengthening from here. Also the pressure of much lower rates will continue to weigh on it.

A rate somewhere in the 40s should be beneficial in the medium term.

But the bigger picture of the $ is harder to call. CDS on US paper indicates continued stress for US assets. However the relationship between the US and China/Japan (huge owners of US assets) is less clear.

$yn looks like one way traffic south back to the lows of 1995 but the Japanese economy is sinking quickly and a much stronger yen may cause bigger problems. There is every chance that off market arrangements may be the order of the day.

Of course those who remember the fiasco of the Plaza and Louvre accords will know that the powers that be often create more mess with their grand designs than they hoped for.

Messy markets are probably what we will continue to get.

With escalating bad news from the US economy the US$ will experience a sudden collapse - a sheepish flight !