English: Kiwi's current 'safe-haven' status makes rebalancing tough, but puts us in elite 'positive economy' group with Germany, Aus, Canada

English: Kiwi's current 'safe-haven' status makes rebalancing tough, but puts us in elite 'positive economy' group with Germany, Aus, Canada

Finance Mininster Bill English says the New Zealand dollar's current 'safe-haven' status is making the task of economic rebalancing difficult, although the status shows the rest of the world recognises New Zealand's in "pretty good shape," compared to most developed nations.

English also said that if the government was able to control the New Zealand dollar through interventionalist policies, it would, but New Zealand was too small to counter the financial forces which had created so much volatility in the global economy.

The Kiwi reached a new post-float high of 87.42 US cents overnight as debt ceiling talks in the US dragged on, with investors seeking alternative investments to the US dollar. That has seen demand for currencies like the New Zealand, Australian and Canadian dollars rise.

“It’s been interesting to watch events over the last two or three months, because we are now starting to be seen as something of a safe-haven, and that’s what’s been driving our New Zealand dollar higher against pretty-well all other currencies," English told Radio New Zealand.

Listen to the interview here.

"We’ve got a solid government that’s making good decisions, an economy with some positive prospects, and that is now almost unique in the developed world. It puts us alongside Germany, Australia, to some extent Canada, and that’s about it,” he said.

English had “given up guessing” how high the Kiwi dollar could go.

“It makes our job of rebalancing this economy more difficult, but it is an indication that relative to other developed economies we are seen by others as being in pretty good shape,” he said.

Asked about risks to New Zealand’s recovery, such as falling commodity prices, English said any negative scenario could be imagined.

“And there are combinations, such as a continually rising dollar and dropping commodity prices, which would be pretty negative for New Zealand. But we have been remarkably resilient through the last two or three years – it’s all been hard work up until now with the global recession, the earthquake, big debt problems from the last 10 or 15 years that we have to deal with. But we’ve dealt with it pretty well," English said.

"I’m confident that whatever the global economy throws at us, we’ll be able to deal with it even if it takes a while to come right again," he said.

'Invest in NZ and you're likely to get your money back'

Meanwhile speaking on Newstalk ZB this morning, English agreed the politics being played out currently in the US was ‘the worst kind of politics’.

“It’s something that’s occurring to some extent in Europe and it’s brinkmanship in the US where they just don’t seem to be able to get the political focus together to make some pretty obvious decisions," English said.

"It’s one of the advantages we have as one of a relatively small number of countries where we’ve got a solid government that’s well organised, that’s making good economic decisions. We’ve got our debt under control, we’ve got a toolkit sitting there ready if things go wrong as a result of the US standoff,” he said.

See more on English's toolkit comments in this article here, including comments from the Reserve Bank on New Zealand's ability to deal with another global credit cruch.

The government had to be ready for the worst these days, because the global economy was becoming so volatile.

“We’ve had 2008 - the Lehmans crash, then we’ve had the Greek crisis, we’ve had our own earthquake. Now we’ve got the US in trouble," English said.

“The way we’re seeing it is that as these events unfold, New Zealand, along with Australia, to some extent Canada, is seen increasingly as ‘safe-haven’. So it’s a place where the international financial markets can send their money knowing that the rules are clear, and they’re likely to get their money back," he said.

"That’s one of the things that’s driving our exchange rate so high against pretty much any other currency in the world.”

If commodity prices drop, so should the NZ$

The rising exchange rate, coupled with falling commodity prices was a problem.

“We’ve been concerned about the exchange rate for quite some time. I would imagine though that if things do go bad in the US, then commodity prices will come down, and the New Zealand dollar is likely to come down," English said on Newstalk ZB.

"So if things go badly, we do have a toolkit there to make sure that New Zealand has the capacity to get the credit that it needs. We went through all of this in 2008 when the markets froze up -the Reserve Bank and the Treasury did a good job of devising a toolkit," he said.

Asked if this meant credit lines from China, English said that would be a small part of the toolkit.

“The more important ones are the facilities the Reserve Bank have set up that would enable our local banks to borrow from the Reserve Bank. Now we see that as an unlikely event, but we’re ready for it," he said.

"What’s more likely to happen is that if the US gets in further difficulty, at least in the short-term, we won’t be affected by that directly. We would then have to wait and see what happens to commodity prices in particular, and whether that pulls our exchange rate back down.

"But one of the things this high exchange rate does demonstrate is, we’re in a relatively unique position in the developed world of having good economic prospects, with our debt under control. And there’s really one a handful of other countries in the same position, and that’s why we’re seen as a safe-haven,” English said.

Chch will help

A lift in rebuilding activity in Christchurch was approaching, which would add to growth prospects.

“And even on the commodity price side, those commodity prices could come down a bit, and they would still be at 20 and 30 year highs,” English said.

'If we could influence the NZ$, we would'

New Zealand was too small against the forces in the world economy to be able to intervene in currency markets to drive the dollar down, “when you have that much concern in the markets about the US dollar”.

“These are unprecedented events, and if we could influence them we certainly would, because a lower dollar would help our economy rebalance away from borrowing and consumption to savings and exports faster," English said.

“New Zealanders have been incredibly resilient. They’ve been saving money anyway, our exporters have kept exporting despite the fact that the dollar has been rising consistently now for quite a number of months. If we can maintain that kind of resilience, then I’m confident we can deal with whatever they throw at us,” he said.

(Updates with Newstalk ZB comments, correct punctuation in fifth par from "Australia to some extent, Canada," to "Australia, to some extent Canada,")

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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Safe-haven my foot.

Alex - a lot of folk crowded to the stern of the Titanic too. Safe havens are a relative thing. Slowest parachutes ditto.

 

Ive been sitting here for three years and wondering why the US was the safe(r) haven when you look at it being such a basket case....I guess now we see the illogic of investors.....no wonder when you look at the fundimentals and expect A to happen, it often seems not to.....the pressure of A happening of course builds....

regards

Now that's spin if ever I heard it!

A funny thing happened to me last night, I went to sleep in New Zealand and woke up somewhere else.....

That actually happened 20 or so years ago scarfie.

NZ was usurped...

You, me and most people we know are subjects...dont forget that!

Subjects of the Crown, the corporations, banks, admiralty law and imo looking at the track record of most international institutions, you are subjected to those as well.

The politics is just an illusion for the subject it keeps them nicely distracted from the true nature of things.

 

Nothing more true sperical , although I am surprised you have not been warned for being a conspiracy monger.
The fact that BE can get such words out his mouth , like stable govt making good decisions only shows the level of deception now faced.
So bare & blatant the lies , they must feel safe that they can't be stopped. JK is a dirty little banker & BE his simple little mouth piece.
I notice that the plan to use Hide to set up the super city , then get rid of him worked well on multiple fronts too. Hide was a great fall guy for the death of perks busting too. No wonder Key can stop smiling, it's all too easy to fool this country.

It's not the case that NZD is a good, safe currency by itself.  It's the case of NZD is less crap beccause of USD is a crappier currency to hold on to.

Updated with English comments on Newstalk ZB this morning too.

'Invest in NZ, and you're likely to get your money back,' is basically his sales pitch.

You could add, 'invest in NZ and if it looks like you won't get your money back, we've got plenty of stuff under the ground we'd let you dig up, and a bank and a few monopolies we can hoc off for ya.'

On safe-haven thing, are there even enough NZ dollars out there for it to be able to operate as a safe-haven? I'd say no.

 

Safe Haven....Ha Ha Ha Ha Ha Ha Ha Ha .......can't stop !!!!

NZ $ is floating up in a hot air balloon ...with 3 - 4 digit basis point compared to 0 digit for the USD......is a hot air balloon ever a safe haven ?? Even his boss says "Please stop printing" to the Feds ....and suddenly we become "Safe Haven"...in which case why not more printing by the Feds ? then we can become "Safer Haven"....and after QE20 we become "Safest Haven" !!!

C'mon Guys , Stop beating yourselves up .... New Zealand is a relatively well run country , with a functioning, stable, democratic  Government , independent Judiciary , a free press, an Independent Central bank, and a competent Treasury and Finance Ministry .

It also runs a trade surplus and produces for export something everyone must have ... FOOD 

New Zealand IS  a safe haven in relative terms.

What is concerning is that we are being punished for doing a good job of managing the country .

Our real problems could start when this whole thing unwinds .....as it will 

Hear hear.

“And even on the commodity price side, those commodity prices could come down a bit, and they would still be at 20 and 30 year highs,” English said.

This is the fundamental point. In terms of commodity prices priced into NZD, we have never been in better shape, we are even higher than the peaks of 2007 by a long shot!

Sure NZ has higher debts than it did 10 years ago.. thanks to the Labour government's spending spree - but now that's coming under control too.

Remember that in the land of the blind, the one eyed man is king. Since currencies and economics are all relative, it's no wonder that NZ, China, Canada, Germany and Australia are all doing well, all these countries produce something that other countries want. When was the last time you saw anything with "Made in U.S.A" or "Made in Britain" or "Made in Greece" on it?

 

Actually Government debt reduced under Labour, it is under National it has increased (from $30,208 million in March 2008 to $59,770 in March 2011).  Nice to know that the higher debts "thanks to the Labour government's spending spree" are under control now.

Your argument is majorly flawed. If National weren't borrowing $300m a week we would have mass unemployment now and be a basket case. National have moved risk from the private sector to the gobenment to smooth out the bumps. Eventually this must stop. Labour were disastrous for NZ.

Nice work they doubled our government debt in 3 years then, but these guys are just so smart aren't they, they must know what they're doing.

Actually I'm being facetious, I don't think they have a clue.

Philly you were right the first time...They know exactly what they are doing, and you can apply that to decades of Nz government. It's going along very well , you just are not able to see who for exactly eh!

 

 

Yeah I see the flaw now.  I hadn't looked at total Government debt the time before when National was in power.  So here it is: March 1990 $20.3 billion, March 1999 $31.4 billion.  

Labour followed getting total Government debt down to $28.7 billion in March 2007.

Yes it is all clear now -- bad economic management is reducing the debt.  Good economic management is increasing the debt.  

Now I know what Bill English means when he says we are experiencing good government.

 

Double post!

NZ is poorly governed has been for along time.

Name one thing any political party has promoted that actually gives the result of how it was meant to for the population as a whole in regards the way it was touted?

How is a strong $ punishing us, personaly its a big bonus, soon I will be able to buy more with my savings as imports begin to fall in value, I will be able to invest in the USA cheap and get a good return, diversify away from a dependence on Kiwi investments.  I may be getting low interest rates, especially after tax, but hey, they are a lot higher than the UK or USA.  Go Johnny go, responsible government we all get richer on the back of the strong Kiwi. Think about all those civil servants on 130 k. a year a few years back only 75k $us now 115k us. Makes one think.

 Talked to a farmer in the USA ,one of the locals sold up and moved to Aussie, he has made a killing on the currency and is looking at moving back.

 

http://www.omo.co.nz/Uridashi%20Flow%20Chart.gif

The powers that be can and will lock down on currency and capital transfers to and from different places around the globe, as an aside its not as easy as you think shifting large amounts of capital out of the US. The for one thing Fed Tax can be prohibative for smaller players say those with a net worth less than 3-5 million US...

Big difference here between real capital and currency as well...

20-30 million US may buy you a ticket into the lower levels of the club...depends what you can do with the 1 million starter to get noticed!

Andrewj , to answer your question about my remark , a currency that is "too strong" wreaks havoc with Exporters because it makes our exported products price - un-competitive and reduces the NZ$  receipts when the commodity or product being exported is demoninated in say US$ .

This is a variation of what is called Dutch Disease ( Google it ) 

But your imputs should get cheaper?

 

I am a fruit grower both local market and (mostly) export. This rampant dollar is killing our returns for Apples and Kiwifruit. Apart from chemicals and new tractors (which we can't afford) our inputs are NOT getting cheaper. What is Bill English trying to do, talk the $ up some more?

 

And fuel? From every imput; from the deisel that goes into your tractor to the avgas that send you apples overseas by plane, to the cardboard that makes the boxes to pack them in, we are still a very import reliant country, and the higher the dollar, the relatively lower most of our costs are. 

Then by your argument deebee, the Kiwi$ at 20us cents would be good news!

Try selling more fruit on the NZ market to the people who have a bit extra spare cash thanks to cheaper fuel.

Try making cider from the apples and Kiwifruit drink.....grow other stuff...

You have to remove the fx rate as a key factor in your enterprise.

It seems like hortocultural produce is the ONLY commodity that NZ exports that is not at record highs. But it is not any lower than 10 years ago. It looks like from 2007 to 2009 hortoculture had a very good run with prices doubling in value.

http://www.anz.co.nz/resources/e/3/e3002f80477f0aefb589f7b5981e494f/File-CPI-20110407.pdf

Perhaps we need to encourage those Chinese to start making Kwiifruit a part of their staple diet then aye?

 

It could be that the value of the dollar halved in that time, it is hard to tell we are measuring the value of something that changes in price- apples using something else that changes in price- dollars. New Zealand has been flooded with money in the past ten years mainly through massive borrowing via the banking system and look what happens the number of dollars we need to buy stuff has shot up. Add in the China effect on prices of manufacturered goods that we inport, the US dollar depreciation and it ends up hard to decide what almost anything is worth relative o anything else, they are all mving targets

I see they announced a 4 cent a year increase in fuel tax for the next few years to help Aucklands roading problems. Government costs are killing us we need them to slim down a lot. The only option I see is sell up and move, go west. 

It's a National govt pork offering to Auckland voters....drive less often and drive at 70ks...I do and I'm saving heaps.

too fast Wolly - if you  go to Wellington soon, 40kmh will be your max thanks to some genius on their Council

No not Government costs, these are your transport costs -- roads and rail -- so you can get to the airport and go west.  Bye.

 

"Remember what Warren Buffett says," our weekend guest reminded us. "If you're in a poker game and you can't identify the fool at the table...you're it. Well, these Tea Party people feel like they're it. And they're not too happy about it."

 

 nicked it of Bill Bonner

Deebee,

As someone who's regularly worked in the industry I have alot of sympathy for your plight, but perhaps you're land could be put to better use where the returns are better. After all fruit growing is a commodity production activity where you're faced with competitors who deal with far lower input costs in terms of land prices and labour costs. Commodity producers in New Zealand will have to face up to the fact that they'll no longer be able to maintain profitability through foreign exchange rate arbitrage in the changed economic environment. 

Come on guys ,wise up. Bill English is a politician and this is an election year. Theyl polish turds to get elected.

This is an export economy and the strong NZ $ must be hurting.He has to spin this as best he can,that's modern politics,spin.

One minute  we're a small open economy with no influence on the world markets ,the next we're the Deutschemark of the Southern Hemisphere !Bullshit.

It's all speculation and a bunch of 'em are pushing the speculative currencies as hard as they can to make the most money out of this crisis,that's what they do. Then they'll find a new crisis.

I still cannot see why he is so powerless to fight the currency speculators.  He can do one thing nobody else can - Tax.  A 0.1%-0.5% financial transaction tax on all foreign currency transactions would mean that the tax on the round trip for the money is 0.2% - 1%.  These people work on small margins so it would make them think twice and if they did persist then we would recieve a lot of tax that could be used to either lower NZ tax rates or  underwrite other currency control measures.  A more stable currency would more than compensate exporters for the small tax.

The problem is not the volitility, its the trend.

Tax is only for the middle classes. NEVER try to pass FTT, you will get flogged some way or another.

Bill has no power over speculators in NY, London or Tokyo.That's where the real money is being made.

We are a major exporter of dairy and brain.

I have been out pruning since I posted,so finally I am back on line to find a few of you are at least interested. Snarlypuss: Fuel: When did the price of Diesel go down? It still costs me a shit load more to run tractors,trucks and wind machines (frost protection) than it did 1 year ago (let alone 10). Granted export freight (ship-very little fruit sent by air,really only cherries) is paid for in $US. Cardboard is produced onshore and is subjected to the usual annual increases.

Wolly: Yea wouldn't $NZ/US @ 20c be lovely! No, I am realistic. Sell more fruit on the local market? Last season we sent about 1/3 of our local market apples to the juice factory because the supermarkets want about 2* in margin than our cost of production. We have leased a chunk of land to a fruit tree nursery for 3 years having removed local market summerfruit which wasn't paying. I look around me (Hawkes Bay - in the middle of the some of best horticulture land) and the only thing that appears to return a buck is Gingko for leaf production exported to China for horn food,oops I mean medicinal consumption. Now for the success story: We grow Gold Kiwifruit for Zespri who are able to give us consistently high returns thanks to the control they have in the market place AND the (thus far) succesful hedging of the $. We also grow Jazz apples which are licensed to Enza. They are the only marketers of this variety BUT they have managed to stuff it up big time. This apple was supposed to be a world beater (like Gold Kiwifruit). Enza do not hedge and we have seen returns drop from $30/carton to $20/ctn last year and we still don't know what we will get for tis season's crop but it will be a darn sight less. Enza is currently in a battle to try and break the single desk marketing of kiwifruit. Zespri and Fonterra,are the only ag/hort enterprises that have been able to ensure returns that have ensured producers will stay in business. 

Anarkist: Who says that the current currency arbitrage/economic situation will prevail?

deebee

What would happen if Turners and Growers get their wish of Zespri reliquishing their government backed monopoly control of kiwifruit exports? I'm sure it would be a windfall for your foreign markets to finally be able to pit growers and marketers of the fruit against one another and get more "competitive" pricing.  Will most growers continue to deal with Zespri, who'll therefore be able to maintain current prices? 

Who can really predict how this crisis will play out, considering that the last major world crisis, back in 1997 dragged on for years and significantly contributed towards the economic structural imbalances which caused the mess we're in now. 

"However, interestingly enough, such nations as Brazil, Russia, and India as well as most of East Asia began copying the Japanese model of weakening their currencies, restructuring their economies so as to create a current account surplus to build large foreign currency reserves. This has led to an ever increasing funding for US treasury bonds, allowing or aiding housing (in 2001–2005) and stock asset bubbles (in 1996–2000) to develop in the United States."

http://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Consequences

OK deebee..so ENZA management are responsible for not hedging when doing so was bloody obvious...Zespri management did hedge and you were safe from the Bernanke QE stupidity....QED ENZA management should be booted out...set about that task...!

Stop bitching about being shafted by the Kiwi$ rise and set about circumventing the problem so you gain on the rise!

ps...where can I go to order a carton of apples to be delivered to my door direct from the orchard?

you cannot prune in the dark, cut your fingers off

 

Apples always looked crazy to me, defies my basic business principles. You have high capital costs and high labour, one or the other not both.Development is slow and expensive. You are weather dependent one good hail storm could set you back years, you supply a commodity that can get sugar core and other problems after its left and may require repacking, you have very high spray costs are exposed to currency movement and have little market control. Employment law must be a nightmare along with Acc and councils. Your industry is slowly being corporatised. Lot against you Deebee.

Anarkist: T&G have very few Kiwi growers and their varieties are basically rejects from the Zespri research program and a tastless chinese strain. 99% of growers will stick with Zespri. BUT Gibbs will be a thorn in the side for us all!

Andrew: you are pretty much correct. We do mitigate the hail and frost problems on kiwis by covering them -because we can afford to. We have very diverse orchard growing summerfruit/kiwis and apples. The kiwis are the best by far. Am away to Welly for meeting today