NZ$ hits 87 USc after Obama warning

Currencies

NZ$ hits new post-float high of 87 US cents after US President Obama warns deficit could do serious damage to US economy

26th Jul 11, 3:21pm by Alex Tarrant

The New Zealand dollar hit 87.01 US cents at 2:50pm on Tuesday afternoon as the US dollar weakened following comments from US President Barack Obama that his government's deficit could do serious damage to the US economy.

Bloomberg reported Obama saying the US government's deficit could do serious damage to the nation's economy if a solution was not found soon to deal with the government's debt position.

Following Obama's comments, investors sought alternative investments to the US dollar, which saw demand for the Kiwi and Australian dollar rise, Bloomberg reported.

“There’s definitely been Asian central-bank buying and that’s been one of the significant factors supporting the kiwi,” Commonwealth Bank of Australia's Tim Kelleher told Bloomberg.

(Updates with comment on Kiwi)

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15 Comments

by Andrewj | 26th Jul 11, 7:38pm 1311665880

Brazils intervention failed

>>>>

Brazil's real soared Monday to its highest level against the dollar since 1999, when the South American giant delinked from the US currency.

The dollar was buying 1.53 reals at midday on financial markets, representing a 0.9 percent increase from Friday. The dollar closed somewhat higher at 1.54 reals.

The latest jump came despite efforts by the Brazilian government to stem the rise of the real, which can hurt the economy by making exports from the emerging economy more expensive.

Brazil's central bank has spent some $36 billion intervening in the markets in an effort to slow the rise of the real in the first six months of the year.

The government has also slapped taxes on financial transactions to discourage speculative investments from abroad.

Brazilian officials both criticized the United States for flooding the world with cheapening dollars andChina for not floating its currency.

by Grant A | 26th Jul 11, 7:46pm 1311666415

How much money has Brazil now lost I wonder in the fruitless task of trying to speculate in the foreign exchange market to suppress its currency.

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by Les Rudd | 26th Jul 11, 8:06pm 1311667560

If they won't change these numbers, no wonder:

http://www.minyanville.com/businessmarkets/articles/brazil-news-brazil-interest-rate-brazil/7/21/2011/id/35869

Perhaps they should have a word with Geoff Simmons:

http://www.interest.co.nz/opinion/54560/tuesdays-top-10-nz-mint-china-getting-old-it-gets-rich-obama-plutocrats-puppet-algorit#comment-633065

No point intervening as they have been while leaving their interest rate where it is. They need to drop it, just as we should drop our OCR and take up the slack with said ratios.

Cheers, Les.

www.nzmea.org.nz

by John H | 26th Jul 11, 11:10pm 1311678602

How much of the so called economic revival in NZ is based on the ponzi government borrowing at $300+ million a week?

If this were removed, what would NZ look like today?

The international investors would be much less interested in NZ if in reality, our GDP growth was only around zero and not 0.8% for Q1 and we were looking to even further lower the OCR due to the implosion of the economy.

I run an export business in the knowledge services sector that is wholey dependent on revenues denominated in $US. I need to find $NZ10,000 a month from January (when my prudent but limited hedgeing expires) to keep the 8 professional staff members employed or tell my customer base that we need a 15% price rise. My customers will look at such an increase and consider if they are better to pay US professionals or professionals from India etc.

We may be constrained in how to manage FX issues, but we can sure manage our internal spending policies which are making NZ a great place to park money while building ever increasing debit.

by Andrewj | 27th Jul 11, 8:45am 1311713143

John H, I too have stuggled to understand why we are allowing the export sector to be hollowed out. As a farmer I ve decided its a battle between finance and producers, if the senario that you suggest was allowed to develop ie, a natural correction after a period of excess based on consumption and mis allocated investment, the banks would collapse and so much of how society now functions is based around a ponzi banking system. Lending to the max on articifialy inflated unsustainable asset values, eventualy all the profits end up either in the IRD's hands or a bankers. Unfortunately most countries in the world are moving to a similar model, so where can we go? Like it or not we all end up in the same boat. A friend who lost their job has another on min wage, its a big challange for the family and now I think they would be better off on welfare, after years as a orchard manager, the apples have gone with along 7 full time jobs.

I see the forestry boom has also ended.

http://www.oftwominds.com/blog.html

The most obvious features of recent political and financial "solutions" are their staggering complexity and their failure to fix what's broken. The first leads to the second.

by FCM | 27th Jul 11, 9:10am 1311714656

John H the government has it's head in the sand over the xrate, i agree that once the jobs start to go then it will be very hard to stop the rot. Exporters, Tourism , SME's like yours can not sustain the high dollar, now they are looking at putting the OCR rate up some more....just one more nail. Like I said people need to have jobs, to pay the mortgage.

by HarryM | 27th Jul 11, 1:17pm 1311729464

So where can the NZD/USD get too?

Ipredict has some good odds at the moment.

This contract pays $1 if one New Zealand dollar buys US$0.9000 or more any time before 1 January 2012

by speckles | 27th Jul 11, 1:04am 1311685469

Agreed....however you will not find many people on this site in a similar position or point of view to yourself. We have just moved 40 positions offshore for similar reasons even though the prompt was the Cristchurch Earthquake and staff desire to leave Christchurch, they were not prepared to relocate to Auckland. The spill over benefits to us owners...the forex position, closer to clients and lastly tax breaks made the move compelling on what was a higher profitable small NZ mutinational.

by Les Rudd | 27th Jul 11, 8:19am 1311711547

Where abouts are you going? What kind of tax breaks are you getting?

How are you staff getting on selling their homes? Or are they renting them out? Or were they all renters anyway?

Anyway, some are just plodding on:

http://www.stuff.co.nz/the-press/business/5333137/Canterbury-keeps-calm-and-carries-on

Cheers, Les.

by Chris_J | 27th Jul 11, 12:44pm 1311727465

Speckles firm is not the only one struggling in ChCh. A friend with a 30 odd employee IT business just lost a major US client ($million plus contract), ChCh business customers gone too, very stressful and tough times for him, especially battling the insurers too.

How is it the growth is so strong? Maybe it's those damn lies and statistics?

by Les Rudd | 27th Jul 11, 2:12pm 1311732726

Why did they lose the US contract?

by Chris_J | 27th Jul 11, 8:18pm 1311754681

Exchange rate, Les. Their pricing was no longer competitive.

by Les Rudd | 28th Jul 11, 9:49am 1311803385

And apparently this is a good thing Chris:

"The current very high value of the New Zealand dollar is acting as a drag on the New Zealand economy," Bollard said in a short statement. "If this persists, it is likely to reduce the need for further OCR increases in the short term."

It's a funny old world, eh. It's perverse.

eqs and QE elsewhere have a couple of things in common as far as we are concerned:

1) We cannot control their occurence.

2) However, we can control how we deal with the effects, if we choose to.

In regard to eqs, better that we don't bury our heads in the sand about building defensively, which it appears is what has happened in the past, now that I've read through some of the stuff shared by Hugh P and others.

In regard to an overvalued currency, again we could mitigate the effects in a variety of ways in particular by changing the way we work monetary policy, as discussed here many times. It could be done, but we choose a different path:

Anyway at least farmers are doing ok:

http://tvnz.co.nz/national-news/farmers-urge-reserve-bank-hold-off-rate-rise-4328781

Bugger, no they aren't. So that's everyone from ag. to hi-tech getting strangled because RBNZ and government are sitting on their hands. Way to go - down the gurgler...

Cheers, Les.

www.nzmea.org.nz

by LloydM1 | 27th Jul 11, 4:23am 1311697408

http://www.ft.com/cms/s/0/434315b2-8ea6-11df-8a67-00144feab49a.html#axzz1TE5fPhCh

What sort of consequences was he talking about - The debt ceiling standoff is nothing but theatre.

He bypassed congress to start a war, because he deemed it not to be a war. The whole thing is a total crock...whatever happens, its going to break eventually!

by Andrewj | 27th Jul 11, 8:24am 1311711862

The Kabuki theatre of America's Debt Ceiling http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011099/t…

drjonathanwilson

Today 07:55 PM

Ambrose

Be careful for what you wish for. Take a moment to consider the precedent that is set by Bill Clinton's advice:

"Bill Clinton advised Obama to do just that: blaze ahead, break the debt

ceiling in defiance of Congress, and “force the courts to stop me”.

Such a precedent is a radical centralization of power in the hands of the President.

You are here endorsing a tactic that is modus operandi by Brussels in their pursuit of dictatorial powers in Europe - break the law on such a scale and then challenge the courts to reverse a fait accompli further down the road.

You cling in vain to the hope that the German constitutional court will reverse the collectivization of liabilities in EMU and yet you cannot see the danger in Obama making the same putsch as Brussels has?

Indeed I would say that Obama is planning on there being no agreement on the debt ceiling so that in true to form revolutionary pattern he can centralize total financial control of the USA.

Jonathan