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90 seconds at 9 am: Bollard's currency warnings ignored as NZ$ jumps back to 82.5 USc; ECB, BoE, BoC hold rates at record 'money printing' lows; Brazil cuts to drag Real down

Posted in News
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Here's my summary of the key news overnight in 90 seconds at 9 am, including news the New Zealand dollar has risen almost a cent to 82.5 USc despite the warnings from Reserve Bank Governor Alan Bollard yesterday that a high currency was damaging New Zealand's export sector.

Bollard warned after releasing the bank's March Monetary Policy Statement (MPS) he may even cut the Official Cash Rate if the New Zealand dollar rose so much it reduced inflationary expectations. See more here in Alex Tarrant's article from yesterday's MPS news conference.

Just to repeat for those who missed it, here were Bollard's key comments:

New Zealand and a number of other small open economies were having their currencies driven quite high by a number of features, principally from offshore due to a considerable a amount of monetary stimulus from the major central banks around the world, Bollard told media at a press conference on Thursday morning.

“When that all happens we do worry about the potential for competitive monetary stimulus. It certainly would be a disappointment if we got this far through the global financial crisis without an outbreak of competitive trade barriers, as we have worried about, only to run into competitive monetary stimulus," Bollard said.

“We all know that there's a number of countries around the world who are quite concerned about this at the minute. They’re ones with their own currencies, it’s not just New Zealand. I’ll put in the same boat Australia, Canada, some of the Scandinavians, some of the Latin Americans, and some of the Eastern Europeans as well," he said.

“But, at least from our point of view, we do see that being driven at least in its recent manifestations primarily from interernational pressures, rather than from New Zealand pressures. In that sense it’s limited what New Zealand can hope to do about it. Of course, were we to see [a] strengthening New Zealand dollar, and were we to see that strengthen to a point where it was actually bringing down our future expectations of inflation, then we always still have the prospect of reducing the Official Cash Rate in response to that,” Bollard said.

'Competitive easings'

As if to reinforce Bollard's worries about competitive monetary easings, the European Central Bank, the Bank of England and the Bank of Canada all held rates at record lows overnight and the Bank of England confirmed it is printing 325 million pounds.

The ECB held its key rate at 1% and President Mario Draghi said the European economy was showing signs of stabilisation, even though Eurozone GDP was expected to contract in 2012, before growing at more than 1% in 2013. However, Draghi said inflation would be above the ECB's target of 2% this year. He also layed the groundwork for stopping the money dumps of the last three months that have calmed markets down. See more here at Bloomberg.

The Bank of England held its key rate at 0.5% and the Bank of Canada held its rate at 1%, although it noted it was concerned about how rising oil prices might affect the economy.

Elsewhere, Brazil's central bank cut its key rate overnight by 75 basis points to 9.75% as it battles to stop the real currency from rising. This was more than the markets had expected.

All this confirmation of easy money conditions and a calmer situation in Greece helped stocks rise overnight around 1%, which in turn boosted the New Zealand dollar. See more here at Bloomberg.

More than 75% of Greece's creditors are now expected to sign up to a debt restructure, easing fears of a forced restructure that may have triggered billions of dollars of Credit Defaul Swap contracts. See more here at Reuters.

Closer to home, Australia's economy continues to struggle. There were 15,400 jobs lost in February, which was worse than economists expectations for 5,000 extra jobs. See more here at Bloomberg.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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28 Comments

Toothless dog with a wheezy

Toothless dog with a wheezy bark presents no threat to the bubble blowers........
 sad ol puppy...!best just to retreat to the kennel....stay out of the sun.
Ah Bolly ..!
But  I do give cudos for being paid so much to occupy a redundant position ....you are the epitome of benign (in the medical sense)

Imagine the mayhem he could

Imagine the mayhem he could cause if he really had the balls. Drop the OCR by 1% and see what that does to the trading algorhythms.

Absolutely - a nice little

Absolutely - a nice little flash crash on the kiwi. Want to shake out the speculators like our dear old PM and find out what the fundemental trade related value of the kiwi is, get unpredictable. Random small changes up and down and unannounced would send them fleeing without messing with the real economy. No reason for the NZD to be the 7th most traded in the world. The recent trend of central banks giving long term signals on interest rate intentions, supposedly to give "investors" certainty, just gives traders the green light.

Interesting read in the

Interesting read in the Telegraph about the BOE
http://blogs.telegraph.co.uk/finance/philipaldrick/100015452/isnt-it-tim...
 
 
At its March meeting today, the Bank prescribed the same policy – leaving rates unchanged at 0.5pc and sticking with QE. The only difference is that QE three years ago was £75bn, and is now £325bn.
Only twice before in the 318-year-old Bank’s modern history have rates been static for longer. In the decade of the Second World War and the austerity that followed, 1940-1950, rates were held at 2pc, and for five years in the Great Depression, from 1933 to 1938, when rates were again held at 2pc.

Interesting use of the word

Interesting use of the word "modern".

Talking bears explain US gas

Talking bears explain US gas prices
http://www.youtube.com/watch?v=40hNSJEKUgo
Also explaining inflation.
http://www.youtube.com/watch?v=VL7V9BnJXO8
Suprising 5 largest per capita greenhouse polluters, not who you think, though NZ is right up there.
http://www.planbeconomics.com/2012/02/21/5-largest-per-capita-greenhouse-gas-polluters/

Re: the bears and the petrol

Re: the bears and the petrol price - nice animation but its a shame they didnt  check their facts re oil price being caused by weakness in the US$
In the last 5 years the US$ index (reflecting its strength against a basket of currencies) has fluctuated in a reasonably narrow band between 0.75 and 0.85 - in fact in the last 6 months it has strengthened to 0.79 from 0.75.
Go here:
http://www.fxstreet.com/rates-charts/usdollar-index/
and adjust using timescale and periods.
As the US$ has been strengthening in the past 6 months so has the Brent price - clearly the bears have not done their research on this one.
The US$ index explained:
http://en.wikipedia.org/wiki/U.S._Dollar_Index
As an aside its worth noting gasoline prices are at or near record highs in Euro and UK Pound terms as well.
The oil price has been rising because demand has been pushing right up against the ceiling of supply.

Right <S>, because when you

Right <S>, because when you measure the value of one depreciating currency, against other equally deprectiating or even better, wieght the index overtly to the EUR where the largest amount of debasement has gone on in the last few months.  And then compare this metric of fiat dollar relative value to a finite good such as oil.  No you are wrong.  As stated the US is now exporting petrol, no surprise that oil is also at record highs in EUR and GPB, they are also doing QE and Qualitative easing.
 
I have made this point before, oil is well off it's nominal highs from 4 years ago, in NZD, never mind inflation adjustments.

The fact that the US is

The fact that the US is exporting relatively small amounts of gasoline (refined oil products) is irrelevant to what the price of oil is and has lead to the myth developing that somehow the US is now an oil exporter and is suddenly well supplied with oil. At present the US produces approx 5.7mbd of oil internally - however it still imports 60% of of its crude oil needs - Just to re-emphasise that point  - 9 million barrels per day of imported oil into the US.
See here: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=wcrntus2&f=4
Some portion of this vast quantity of IMPORTED oil is then being refined in the US and then on sold to foreign markets (because it makes the refiners more money) which is then showing up as exports. It does not mean for a moment that the US (or anywhere else) is well supplied with oil.
This whole idiotic concept that the US now somhow being a well supplied oil exporter was summed up in this piece:
http://www.wallstreetdaily.com/2011/12/16/peak-oil/
The comments at the bottom of the piece systematically debunk this myth.
The figures for oil production and useage are all available at the IEA website.
http://www.eia.gov/

Yes and I was comenting on

Yes and I was comenting on petrol prices.  However here is the price of oil in NZD real and nominal.  Still well off any previous highs, both in nominal and real terms, it seems that we are not paying anywhere near the record.  The majority of the nominal increase in petrol prices is from taxes.  Interestingly Dubai crude is trading at a record premium to the other indexes.
http://www.interest.co.nz/charts/commodities/oil-and-petrol
 
Money printing causes inflation.  Why is petrol so expensive in the US?  Because they have done a lot of printing. 
 
This is not a supply side shock, it's demand driven by increased amounts of currency chasing a finite supply of goods.

In which case how do you

In which case how do you explain the oil price spike of 2008? That was only 4 years ago. Which happens to be the last time there was meaningful US/global growth. There was no US money printing at the time.......(it was before the crash). The US$ at the time was relatively firm.
Oh dont tell me - that was the speculators.
Nice to see the use of the word 'finite' - and that, as much as anything is the key. Granted if you print more to buy a supply constrained resource then you can make the arguement that you need more units to buy the equivalent - but that only happens when supply is CONSTRAINED (a la peakoil). By way of comparison look at US natural gas prices - there is a regional glut and all the printing in the world cant make the Henry Hub prices go up. Prices are down 200% plus.
 

The 2008 spike clearly

The 2008 spike clearly illistrates my point, it was across the globe, in every currency.  It was indeed a case of demand exceeding supply, as inventories and spare capacity were low, and getting close to negative.  Today is different, the shift in prices is varied across the globe, relative to the amount of debasement occuring. 
 
Oil has always been finite, and we started to run out of it since we burnt the first drop.  I do not believe this is priced in at all.  If it was accurately priced in, oil would have always been far higher.  The eventual disapearance of oil is not a factor in price (irrational I know). 

Essentially what all this

Essentially what all this "sterilized" QE does is give the Fed a different "spin" on financing Government deficit spending and injecting a meaningful amount of cash stimulus into the system. In perfect Orwellian fashion, the Fed throws up a semantic smokescreen by calling it "sterilized" QE.
 
http://truthingold.blogspot.co.nz/2012/03/its-all-in-spin-baby.html

There is a huge discoonect

There is a huge discoonect between perceptions.  RBNZ percieves an increase from 2.5% to have an inflationary efect on the NZD, yet compared to Brazil or Australia our rates are ZIRP.  The only real effect raising the OCR will have, is on mortgage rates.  Everything else is just noise.

@ skudiv - The only real

@ skudiv - The only real effect raising the OCR will have, is on mortgage rates.  Everything else is just noise.
 
In the real world that is not the case: - it costs decidedly more to short the AUD/US currency pair than the NZD/USD pair on a daily basis. View here - I suggest mids to get a clear picture.  
 
@ Bernard - Closer to home, Australia's economy continues to struggle. There were 15,400 jobs lost in February, which was worse than economists expectations for 5,000 extra jobs. See more here at Bloomberg.
 
How do we explain the huge arbltrage opportunity when the Aussie cash rate is @ 4.25% and the Kiwi OCR is stuck @ 2.5%?
 
More interestingly why do Aussie Government bond dealers accept virtually no carry profits and still 80% of the issuance is owned offshore, while here the carry is still respectable, given that one can probably fund position at OCR +20-25bps, if you are JPM or equivalent?     

Sorry, there is no

Sorry, there is no correlation between rate premiums and FX rates.
http://www.interest.co.nz/charts/interest-rates/rate-premiums
You'll find greater correlation betwen the dairy price and the NZ/USD.
http://www.interest.co.nz/charts/commodities/dairy-prices
Correlation is no implication of causation, but without correlation it's difficult to imply cause.

Bollards bluffing is not

Bollards bluffing is not working , but what can he do ? 

shock the table and call..!

shock the table and call..! Boatman..! but the need to pee will take precedent....sad ol puppy!

  Jurgen Stark, the ECB's

 

Jurgen Stark, the ECB's former chief economist and Germany's board member until two months ago, said the blitz of lending had corrupted collateral standards and risked inflation.

"The balance sheet of the euro system isn't just gigantic in size but also shocking in quality," he said.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9132355/Germanys-monetary-doyen-slams-ECBs-shocking-balance-sheet.html

 

  Legal skull-duggery in

 

Legal skull-duggery in Greece may doom Portugal
The rule of law has been treated with contempt," said Marc Ostwald from Monument Securities. "This will lead to litigation for the next ten years. It has become a massive impediment for long-term investors, and people will now be very wary about Portugal."
 
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/913221...
 
 

angryofmayfair
25 minutes ago

 

 
I think the most depressing aspect of watching the EU ‘elite’ over the past 2-3 years is that for a long part of my life I considered myself fortunate that I lived in a free society where there was rule of law and recourse to courts and justice was for all, no matter your position. But EU rulers have demonstrated time and time again that the rules do not apply for those with money and power, and having been given a mandate to run the country by their constituents, have chosen not to serve the people but to exploit them for their own gain. In the end they really are no better than say, Robert Mugabe, or even Kim Jong Il. They are just better at hiding it.
Was I naive?  I guess I never really understood the meaning of the phrase “power corrupts, and absolute power corrupts absolutely” until I witnessed the dealings between the Fed and Wall street a few years back, and more recently in the actions and words of elected and unelected Eurocrats.
The future is looking more Orwellian today than it ever was.

 

Actually a lot of good charts

Actually a lot of good charts here, M3 growth slowed yoy to 5.5%, with a 1% contraction mom.  Does more to explain the recent dovish tone, then anything else I've heard.  Possibly the most underrated indicator, deserves a lot more attention, no wonder the fed stopped reporting it.
http://www.interest.co.nz/charts/credit/money-supply

And Amerika's debt is on the

And Amerika's debt is on the up and up, deleveraging technicaly over.
http://www.zerohedge.com/news/us-deleveraging-now-over

Solid Energy buying Pike

Solid Energy buying Pike River Coal:

PwC Partners John Fisk, David Bridgman and Malcolm Hollis, Receivers of Pike River Coal Limited (In Receivership) today announced they have reached agreement with Solid Energy New Zealand Limited for the sale of the assets of Pike River Coal Limited (In Receivership). The agreement is conditional upon due diligence by 30 March 2012, together with other conditions, with settlement expected in May or later depending on approvals being obtained.

Mr Fisk says, “We, as the Receivers, are pleased with this agreement as we consider it the best way forward for all parties. As part of the agreement, negotiations will continue with the Crown to establish a trust that will help oversee efforts to enter the main area of the mine and facilitate body recovery – if it is safe and technically feasible.

“In the meantime, work on the tunnel reclamation is continuing. We will provide further updates as appropriate.

“No further details of the transaction or any related matter can be released until the agreement is unconditional,” concludes Mr Fisk.

Speculation Blamed for Global

Ze Germans also blamed ze

Ze Germans also blamed ze speculators for pushing up the price of bread so one loaf = wheelbarrow full of money.  Imagine if food was affected by the enviroment, input costs etc.  From all I've heard the cost of producing milk has risen faster then the price of milk, not that fundamentals matter.

"governments adopt tough

"governments adopt tough reforms only when all other options have been exhausted,"
http://www.reuters.com/article/2012/03/08/us-eurozone-policy-idUSBRE8270ZE20120308
and by that time the problems have become many times worse!
JK is selling stuff to raise cash to make up the pot of dosh needed to fix chch...the pot was too small at the EQC because previous govts regarded the risk of a major disaster as remote...had they planned in advance and made the fund fatter the money would have come from families over maybe 20 to 30 years. Hindsight !
Were it not for the chch mess and the the rotting homes mess...the economy would not be in the poo at least not so deep....that might mean we would be seeing no action from govt at all...indeed we may still be stuck with Clark...there would be no incentive to end the benefit splurge...
Is this the crisis NZ always needed if it was to make the giant leap from socialist state with enterprise tacked on, to a state where enterprise was encouraged and saving fostered....where the govt really did govern...... and not the banks!

"Labour has today revealed

"Labour has today revealed details on a new Member's Bill which will make it more difficult for foreign investors to buy rural New Zealand land." herald.
And lets look back at what Labour allowed to be sold under Clark...oh gosh it amounted to heaps more than the current fools....of course Shearer's word is his bond..right?....oh it's only chitchat policy....thought so.
We know so because if Shearer gets his snout into the trough...the bankers will be there to make sure he does what they want....and they want the rural land bubble kept intect..and that requires sales to rich people from overseas...which all boils down to Labour NOT changing a thing.

" Banks, the minister for

" Banks, the minister for regulatory reform, escaped having to defend himself in court for signing a prospectus that contained false and misleading statements"
http://www.stuff.co.nz/sunday-star-times/latest-edition/6555733/Petition-stalks-Banks-Brash