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By Mike Jones

The NZD/USD has spent most of the past 24 hours consolidating in a 0.7120-0.7170 range.

The key theme in currency markets overnight was US dollar strength. Fresh concerns about how Greece will fund its expanding deficit prompted renewed demand for ‘safe-haven’ assets, supporting the USD and JPY.

The Greek PM admitted high funding costs are making cutting Greece’s deficit difficult. Meanwhile, another Greek official suggested Greece may apply for aid from the IMF as early as the Easter weekend. EUR/USD slipped to 1.3620 and GBP/USD fell back to around 1.5260.
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Finance Minister Bill English and Regulatory Reform Minister Rodney Hide have announced the creation of a Productivity Commission early next year to help boost New Zealand’s economic performance across the public and private sectors. The creation of the commission was part of the National-ACT confidence and supply agreement signed after the 2008 election.

“It is essential that we increase our economic growth if we are to create the jobs, higher incomes and opportunities New Zealand families deserve. Our main challenge is to ensure this growth is based on private sector investment and exports, rather than the unsustainable increases in government spending and borrowing of the past decade,” English said.

“This will require action across the board – and it’s why the Government will give the Commission wide scope in terms of the issues it directs it to consider,” Hide said.

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By Mike Jones

The NZD has been the strongest performing currency over the past 24 hours.

NZD/USD has pushed up to near 2-month highs around 0.7150, while NZD/EUR is sitting at 2-year highs above 0.5200.

Risk appetite has been bolstered over the past 24 hours by pledges by both the Fed and Bank of Japan to maintain their extremely accommodative policy stances. While the Fed promised to keep interest rates low for “an extended period”, the BoJ actually eased policy further yesterday by increasing its lending to banks (3-month lending operations were doubled to ¥20t). Global equity markets revelled in the prospect of low interest rates for some time to come. Asian equities rose 1.2-1.9% with European and US indices up slightly less.

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By Mike Jones

The NZD has spent the last 24 hours drifting higher. The NZD/USD is currently sitting around 0.7090, having started the week closer to 0.7000.

This morning’s statement from the Federal Reserve stuck to the script. The Fed left interest rates unchanged at 0-0.25% and confirmed its asset purchase scheme is slowly winding down. Still, US interest rates and the USD slipped in the wake of the announcement, with the Fed reinforcing the idea it is in no hurry to withdraw current monetary stimulus. EUR/USD spiked above 1.3760 dragging NZD/USD up to 0.7090. (more…)

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David Chaston details the key news overnight in 90 seconds at 9am in association with the BNZ, including The US Fed has held its official rate target at 0.25%, but it was not unanimous, with a key member dissenting again. He warned of the risks of low rates over an extended period, saying this could be causing imbalances and a tougher policy response in the future.

In Europe, S&P has backed away from downgrading Greek debt after Euro Zone ministers moved to adopt a bailout framework – taking the immediate sting out of the Greek crisis – but possibly raising the stakes when other countries come under budget deficit pressures..

In fact, EU officials have warned the UK that it wants to see faster cuts in the British deficit – and they say it matters not that the UK is not in the eurozone – the Brits need to do this because they are in the EU and have signed up to Brussels policy. Apparently, EU officials don’t believe the optimistic British forecasts, and say the planned deficit reductions are just not good enough.

By Bernard Hickey

I spoke this morning at a business breakfast hosted by finance, accounting and IT  recruitment firm Robert Half about the Global Financial Crisis. I’ve compiled 30 charts which I think tell the story of how we got into this mess and how we might get out of it, although not necessarily unscathed. (Updated to include more detail for those not there)

My view is that the forces of de-leveraging that are building both here and globally could see us effectively repay NZ$45 billion of debt (25% of GDP) over the next 7-10 years. That’s what previous de-leveraging episodes after credit booms have delivered. Given we can expect low growth, higher interest rates and low inflation over that period, this means a lot more saving and significantly less spending growth. That will be tough for retailers and those that depend on credit fueled investment in property for their income.

My longer term view is that New Zealand businesses face a battle retaining skilled stuff unless we have a real debate about economic reform and the need to reverse (or at least stop) a massive intergenerational transfer of wealth. With current policies (including the pension age stuck at 65, National Super at 66% of the average wage, publicly funded healthcare and tax-free capital gains on property), there is a risk the working generations (20-60) will be paying income taxes of above 50% and GST of above 25% by 2030 to pay for the pension and healthcare costs of the retiring boomers.

Those in their 20s now face heavily indebted futures based on the decisions of their forbears to spend now and transfer the debt generated by that spending to the next generations. A workforce that will have little disposable income (after taxes) and options to flee (to Australia in particular) will have to be motivated very carefully.

There is a risk, given the above, of an exodus of our skilled workers that leaves a hollowed out economy filled with retirees, landlords, farmers, migrants and beneficiaries that clock up big budget deficits and an unsustainable debt. That’s without reform of our taxation system and our productivity performance to lift our growth rates and incomes.

That’s why I’m trying to get a bit of a debate going. Your views?

Your view? I welcome your views and comments below