Key says falling exchange rate generally good for exporters, but not a one-way story as NZ$ closely linked with commodity prices, which may be easing

Key says falling exchange rate generally good for exporters, but not a one-way story as NZ$ closely linked with commodity prices, which may be easing

An easing off of the exchange rate should help New Zealand exporters, but could be signalling a fall in commodity prices, which are closely linked with the New Zealand dollar, Prime Minister John Key says.

His comments come after BNZ's head of research, Stephen Toplis, said yesterday that the New Zealand economy's commodity boost looked set to falter, making him nervous about where prices for our commodity exports were headed over the short-term.

Fears that the sovereign debt crisis in the Eurozone and the faltering recovery in the United States will hurt global growth have been dominating headlines for weeks. The New Zealand dollar has fallen from from a post-float high of of 88.4 US cents at the start of August to just under 78 US cents this morning.

Key said yesterday that Finance Minister Bill English told him the mood among global economic policy makers was 'very dark' in New York, where he was meeting key players such as US Federal Reserve chairman Ben Bernanke to get a better gauge on where they thought the global economy was headed.

Speaking on TV3's Firstline programme this morning, Key, a former currency trader, said a falling exchange rate was not always a good news story for New Zealand due to the signals it put out.

"There’s a couple of things happen with our exchange rate. One is ... generally the world investment market’s been getting out of US assets and buying other assets, so we’ve been a beneficiary of that, but that pushes our exchange rate up. The other thing is we’re reasonably commodity-linked," Key said on Firstline this morning.

“So sometimes when the exchange rate goes down it’s a reflection of how bad the international markets are, or that commodity prices might be easing back, so it’s not always a one-way, good news story. But certainly the easing off of the exchange rate helps a little bit,” Key said.

'Commodity boost coming off'

Key's comments come after BNZ's Toplis said yesterday there were sufficient warning signs to make him nervous about whether strength in New Zealand's commodity prices seen over the last year could be maintained.

There was increasing evidence that dairy commodity prices had peaked, with Fonterra’s auction prices drifting lower, US supply ramping up, and demand from China dropping off over the last few months, Toplis said.

"We remain optimistic that the medium term outlook for the sector is very robust indeed but all commodity prices cycle around a trend and it looks, and feels, as if the down bit of the cycle has begun. In large part this is already acknowledged by Fonterra itself in that next year’s projected payout is some 13% below this year’s payment," he said.

If that was fully reflected in exports that would be consistent with a NZ$1.5 billion drop in export earnings for the sector. The current annual merchandise trade surplus is NZ$1.1 billion. 

Forestry sector prices and volumes were also coming under some downside pressure at the moment.

"Falling demand for construction activity globally is unhelpful. Even in China there is evidence that fixed capital formation growth is slowing," Toplis said.

Apples and, especially, kiwifruit exports were enormous compared to year earlier levels. But the question would be how much kiwifruit there would be to export this time next year when the full impact of the PSA virus on production was added up?

"As has been the case for some time, the role of China will be very important in determining New Zealand’s external  success or failure in the year ahead," Toplis said.

"Over the last twelve months exports to China grew 36.8%. China now accounts for 12.5% of New Zealand’s total goods exports, pulling rapidly away from the USA, which now lies a distant third at 8.5%. Over the last year exports to China and South Korea have rocketed away – whereas exports to Japan and the USA have actually fallen," he said.

'Extreme EU volatility on the cards'

Meanwhile, Key said a global double dip recession could not be ruled out as there could be some extreme volatility in parts of Europe.

“But I think the general feeling from Bill [English] is that while the atmosphere and the mood is very dark in the United States and in Europe, that we may just muddle through. I know a number of the major economic commentators don’t think that there’ll be a double-dip recession," Key said on Firstline.

“But what we are in for is a period of volatility, I suspect extreme volatility in certain parts of Europe. [We] may see a reduction in global growth – that’s certainly the view from the New Zealand Treasury and the Reserve Bank – that’ll have some impact on New Zealand," he said..

“The big challenge for us, or the interesting position for us, is whether Asia can stay de-coupled from Europe and the United States. If that’s the case, and China stays strong, then Australia will stay strong. They’re our two big markets, and growing very rapidly. That will at least help take the edge off that. It’s not perfect, it’s always better if the US and Europe is doing well, but at least we’re not as isolated as some countries are.”

'We need a capital gains tax'

Here's Labour leader Phil Goff responding to Key's comments that New Zealand should make it through the global turmoil. Goff says Labour's policies assume a lower growth track than in the 2011 Budget, and that a capital gains tax was needed to broaden the tax base.

(Updates with videos of Goff and Key on Tuesday morning in Parliament building, Toplis comments, comments on European volatility)

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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everyone needs to see this, its a trader on the BBC, crash coming.

http://market-ticker.org/akcs-www?post=194838

Absolutely go have a lookie see at this guy Thanks AJ......holy smokes the kind of honesty youd prefer to see from the Banking Elite in the E.U.

The conundrum here for me was I did not know whether I wanted to give the guy a medal or throw him out the tenth floor window.....it's just that brutal just that good.

Another cracker AJ.

Chuckle - whilst not finding that much to disagree in what he is saying, and admiring that he is saying it to the wonks at the BBC finance desk, you do realise he will be hugely talking his book - ie he will be short most everything other than the US$/Treasuries? A great platform for him.

Haha hilarious.

Interesting his 3 year time frame, I was having doubts until I read up on what happened in the 30's. 

Alessio Rastani ? .. any of you fellows heard of this guy , before this morning ?

... he's a trader , the guy admits that he dreams of a recession , because he'll make alot of money shorting stock and commodities . His vested interest is to see collapse , and mayhem . That is what he earnestly wishes for .

He produces nothing tangible , no good nor service for society . He works for himself as an independent speculator , preying in the fears of other investors , hoping to line his pockets with their money .

Some new " hero " that you've latched onto ! ...... ha ha de haaaaaaaaaaaa !!!

Don't fret .. Nothing much to be learnt from that video interview .. wonder where they got him from .. must be scraping the bottom of the bucket for that .. bit edgy .. have known for a long time .. majority of small traders trade on the short side .. and 95% of all traders fail .. this morning did a half hour session with a guy who works in a prop-shop comprising 40 in-house jockeys, and 10 remotes .. and out of those 50 only one successfully takes consistent money out of the market ..  

Yup , and some celebrated traders make fortunes for themselves and for their banks , or hedge-funds  ... and they do so for year and  years , until one fateful day when their risk model gets screwed up by a once on a quadrillion-squared year event .

... amazing how often these one in a quadrillion-squared year events are occurring , lately .

Don't get me wrong , Mr Rastani makes a compelling argument . But any one of us could search the internet and find a trader with an equally convincing presentation , that the world is just months away from a " new normal " , which will usher in a golden age of milk & honey .

 Ohh Gummy - obviously sleeping under coconut trees is relaxing, but not ideal.

... that's not relaxing at all ... we prefer to doss down under a mango tree . Less damage to the cranium from a soft half kilo mango landing on the bonce from a 60 foot drop , than from a rock hard 4 kg. coconut .

..good response from an experienced man.

Yup , even panadol couldn't take away that pain .... ouch !

No like I said GBH ...it left me in two  minds ...one to throw him out of a window.....the other  to give him a medal  for  the sheer gaul of the man to frontbum the presenter and leave a room full of gaping mouths.....now that's what I call an interview.

I tell you I'd be a lot happier if Goldinmysachs could front  in the same way.......ooooh yeah..!

 

Gummy the bit I found humourous was his bit over not caring whether the market goes up or down, as long as he makes money out of it. Totally non productive but at least he is honest about his motivations, which is the refreshing bit.

Hero, no, just someone that can see the ingredients for depression being remarkably similar to that after 1929. 

What is probably laughable, is that a depression would likely mean the end of his sort of behaviour. For a time at least.

His comments are not so different from some bloggers here ( not you nor me ! ) who take a grim delight in waxing lyrical about how terrible the future will be ... Not may be ... But will be... ... Somehow they " know ."

.. .. if Gummy " knew " the future , I wouldn't be sitting around flapping my gums to all and sundry ... I'd be busy setting things in place to make my fortune .

My response is the same to a work colleague who bought an expensive day-trading soft-ware from some Aussie company : If it's so darned good , if it cannot fail , when why are they selling it to you ...... rather than using it to enrich themselves directly .

[ .. ironic isn't it , how many people were in favour of a Tobin Tax , to crush the speculators , yesterday .... but today they've gleefully posted the same video of a trader preaching doom & gloom , four times !.. ]

GBH ..I've got to say  touche' on the last paragraph...well  spotted...guilty myself in fact...albeit out of sheer frustration at the excessively overvalued kiwi....the wet blanket Govenor....the sneak up on em Billy Bob...and that smiling bas$%rd.

That said I think scarfie and I were on the same page ...scarfie used the word refreshing...!...I think his candour was exceeded only by his self assured swager....in fact he was the epitome of self interest................entertainment value AAAAA+....... if there is not a parody done on it ...we should do one.

In October when Treasury opens the books, how independent really do you think the economy or more correctly the Govt's handling thereof be assessed....?

I can just see Billy Bob with the draught handing it back to a sweaty little Bolly Bib saying ..".do again."

Just like everyone latched onto John Key you mean? A parasitic currency trader

Why do you call currency traders " parasitic " ?

gbh - you wouldn't ask that queestion if you understood what underwrites money.

I'll give you the tip - trading in it is a zero-sum game. Someone else has to do the something that provides the something that the trader expects to 'buy' with his 'profit'.

 

Yes , but there has to be a counter-party , someone else on the opposite side of each trade . And Gummy recalls with some glee when the speculators simultaneously attacked the HK dollar and shorted the HK stockmarket , assuming that the HK gov't would raise interest rates , and thereby crush the stockmarket . A guaranteed windfall for the speculators , .. or so they thought . The HK gov't had more balls than the US or the EU , they raised interest rates and directly purchased stocks . ... . wiping out the speculators , including currency traders .

..... the fact that few central banks or governments have the skill or the spine to attack back , to crush the speculators' positions , is no reason to call the speculators " parasites. "

I do recall that the US Treasury Dept. and Wall Street were scathing in their condemnation of the HK gov't for interferring in the capital markets ....... the HK gov't made a whacking great profit ... heh heh ha !

One for GBH......

Now that was a nice fine! Wonder in TVNZ will play that on the 6pm news? LOL not a chance.

Trader on the BBC says get ready for Greek default because...

'Governments don't rule the world, Goldman Sachs rules the world. Goldman Sachs does not care about this rescue package.'

http://www.youtube.com/watch?v=aC19fEqR5bA

Hey Alex did you not lookie se at A.J.'s link ...already up bro.

I'm a bit behind the play this morning it seems eh Christov :)

Nope and as he says he's hoping for a deprssion/recession....so GS probably is as well....

Hey GBH, your cash is with them right?

You know in Haiti they have mud burgers because that's all they can afford to eat? maybe its time to bail and make sure that isnt your future menu choice.

regards

 

Hmmmm , meebee I should go to Haiti , and assist farmers growing stuff . 'Cos here we got a diet of fish & rice , some chicken and pork  , and seasonal fruits & vege . All local produce . Zero carbon footprint . Mangos , coconuts , bananas , avocados , jak-fruit , custard apples , pineapples , lanzones , rambutans .... Pumpkin , eggplant , snake-beans , kadjes , tomatoes , onions , herbs carrots , potato , cassava root ........  Local bread , pandasal .... very tasty .

.. .. planning a tilapia fishpond for the swamp . They'll keep the cane-toads company .

Life is good , steven , very good .

[ .. sadly , I did not take Warren Buffet's lead , and invest in GS .. ]

Right that's it ......I'm headed to Panay Bay....stock that swamp n don't fergit to throw in a few fresh water lobsters......

Just love custard apples to bits....!

You're welcome , Count ! ... the custard apples ( called " atis " here ) , are devine , so sweet and flavoursome . And they fall to bits , truely tender and soft .

..... not alot of freshwater lobsters around here . But over on Palawan the lads caught a 21 foot long marsh crocodile . It is longer than the famed saltwater crocs of Australia . And in 2010 a new species of lizard was discovered , surprised me , 'cos the brutes are 2 metres long .

An amazing country !

Had me wondering what the hell I was doing here.......had a quick paddle out on the kayak this eve...five  good pannies...a bit on the cool side...but beautiful....and freinds over for fresh snapper tomorrow....I guess I've very little to complain about really ........

save them custard apples (atis) oh my they are just the tastiest thing....gonna go dream some more about them now. Cheers  ...stay well enjoy.

Exactly , Count .... be alert to the " good stuff " in life , there's more of it around than we  believe .

... Gummy just found another 5 seedling coconuts amongst the debris washed up on our beach . For someone else it is just  an annoying typhoon , for me it's the opportunity to extend my new orchard .

When silver went below $26 and gold hit $1536 last night, it looked like that chap was spot on, but early!

So maybe the semi-wise money is bailing from gold.....suspect the wise money (Soro's of this world) are long gone.

It will be interesting to watch if this is a glitch or a long term trend......being a fly on the wall for the gold junkies would be entertaining i suspect.....

regards

Steven, I think its got a bit ahead of itself IMO in a very similar move to 2008, and is by all accounts still NZD$300 above its long term trend even with the recent pullback, so more downside in NZD$ could be likely. 

However in saying that, the worlds financial problems are about to get a lot worse and gold is still clearly the best long term investment out there right now.

Updated with new video of Key on way to caucus this morning in Parliament buildings.

He thinks growth will be "broadly" in line with the forecasts.

Updated with video of Phil Goff's response to Key saying growth should be in line with forecasts. Goff says Labour is assuming a lower growth track than in Budget 2011, and that a capital gains tax is needed to broaden the tax base.

Cheers

Alex

even the Tangata Whenua cant stick him !  --   "Labour leader Phil Goff denies his entire Maori caucus wants him gone.    "

Even if true who will replace him?   cant see too many ppl standing forward for a beating in November.

 

regards

So very true Steven....and that clearly demonstrates personal agenda's supersede the party agenda.

The Nat's will be re-elected unopposed....... Dr  Don will have a quiet smoke on the verandah while the Beatles deliver a haunting version of Nowhere Man.......

PG  still thinks we can grow though....but when your reason for existing as a (Labour) politician is to promise jobs there is no where to turn when there is no growth and no jobs....

Sorry Phil we past Peak Oil and you are a dinosaur.....just like JK......time to evolve or go extinct....

regards

Yeh but, if there is no new money inthe system then the goverment gets more but someone else ends up with less, not an ideal solution to the problem.

Oil price has not come down that much. But good time to buy gold. The Euro rescue package is destined to fail.

If it goes pear shaped and we slip into a major depression commodities might not do very well, copper, zinc and so on did very poorly during the great depression.

However during the GD we has an abundance of such resources.....now we dont.....so its an un-known.........for myself I think oil will collapse and recover pretty quicklly to the $80USD.....meanwhile some countries will disappear off the global map...

Gold is for the inflation fools IMHO....at least past some being a sensible safety thing.

regards

Hi Steven

I'm interested in you rationale for massive deflation given you thoughts on "peak everything" which imply shortages of some essential commodities.

I get a worldwide credit collapse is likely to lead initially to deflation, but what I don't get is why you believe governments will not continue to try to print (increase credit velocity) until they get traction.

I think you explained in one of your posts a while back and I can't understand your reasoning. I listened to Marc Faber recently and his logic seemed similar to yours but he was predicting inflation in the 3-5 year horizon. He seems to get peak oil.

 

Thanks

Ptotemy - I don't see deflation. I see  far too much 'money' awash in the system, too little 'home' for it. That says a bidding war for the scarce essentials. It also probably says a price crash for the non-essentials (it becomes a self-feeding downward spiral).

By and large, you have to expect negative growth, accelerating, alongside increasing scarcity. If that's what causes stagflation, along with an oversupply of 'proxy', then it is stagflation we will have.

To have deflation you need to see progressive, on-going de-leveraging. In the past three years there has been much discussion about de-leveraging. If you have followed Bernard Hickeys missives you will have noted he keeps referring to de-leverging in the future tense as an un-known quantity. It hasnt happened, and is usually accompanied by capitulation where holders of significant assets "puke" their holdings. In three years, that has not happened, and appears unlikely to happen due to the worlds-leadership-group providing guarantees to the "banking system" to prevent capitulation, thus bankrolling the asset-holders.

The other side of the coin is inflation which is characterised by the absence of de-leveraging. The merchant banks and the Federal Reserve have $ trillions of toxic assets on their books to demonstrate that.

I don't quite see how there hasn't been any de-leveraging.  What do you think it looks like?

It is hard to find an asset class that hasn't slumped since 2007 or a financial institution of any note that hasn't sold off assets and raised capital to bolster it's balance sheet and reduce leverage.

De-leveraging is also quite likely a major contributing cause of the volatility in markets all over the world as companies do in fact "puke" holdings and assets as you put it.  With european banks like credit swiss seeing further markdown of assets this process will as bad assets put continuing pressure on their poor balance sheets.

Printing money doesn't increase the velocity of money, two quite different things.  The lack of velocity is the reason they print, to try and compensate.

But given the truly stupendous levels at which money in all it's forms (not just cash) has been printed by reserve banks all over the world the lack of meaningful inflation is a very telling sign that traction just isn't coming.

I think we can take as given that governments will print, print, print as Mr Faber maintains.  What is unknown is if this printing can really create any substantial traction or whether if they do in fact get traction they can take the money back out of the system before velocity creates destructive levels of inflation.

Well we have past peak oil so anything before us is unique....so its possible others will be right but it will be for the wrong reason IMHO....time will tell.

MF has been screamig hyper-inflation for 3 years....it isnt here.......core inflation is still 2% and if anythign dropping....so there is no real panic to protect myself from inflation I dont see happening anyway.  I have not seen him comment on peak oil....it would be interesting to hear him on that......

The three main reads for deflation are Steve Keen, Nicole Foss and Paul Krugman....there are quite a few others....

Paul krugman has a technical economic view of why no inflation....the zero bound trap....

Once you start deflation its almost impossible to stop...this is a confidence game and the game is to keep ppl spending and gambling in the stock market..

I dont know where to start really as there are so many aspects

but it comes down to energy, we use 17TW per year its the life blood of our economy.....and it has to be cheap.

....shares, well consider that the value of the companies in the share market is under-written by cheap and plentiful oil.....what are they worth when thats no longer the case?

a lot less, thats deflationary.....pensions own a lot of shares which they would sell down to pay pensioners.....thats a lot of shares to be sold, who will be buying? tahts also defaltionary

There is a lot of factory over-capacity.....thats deflationary.

Take some round numbers, say teh US economy is 10trillion, 70% of which is consumer spending.....slam those wallets shut and the economy is going t be in a bad way....very bad.....hence when you say Govn's printing consider they have to fill a huge hole every year......they have not as yet come near...

One of the biggest is goods are worth what ppl are willing or able to pay....if the retiring BBs find their pensions no longer there, in a share market collapse where is their buying power?  Look at commercial property.....it also relies on retailing......malls closing left right and centre.....pensions also have commercial property portfolios.....another hit....

So what I see happening is the destruction of paper wealth.....massive destruction.....

Nicole Foss on youtube is worth the watch IMHO....

Steve Keen and his minsky work is well worth reading and watching, and again its on youtube.....

Really my outlook is based on what I think are ppl who are good thinkers and logical......the quality of their arguemnts are over-welming IMHO......if you can sit down and look at the inflationists and the quality of their reasoning, not least of which is its no where to be seen after 3 years......well that should be telling you something IMHO.

So I dont think Govns can simply print....if they print confidence is destroyed....if they dont is collapses......there are limits I think.....

regards

 

 

 

 

 

 

 

 

We have over production of many things at the moment and I haven't seen much evidence of wide spread resource exhaustion.

Oil will go through it's cycle and will never really go down, but it can certainly suffer slumps.  If we see China go through a bust sometime in the next 24 months I think you'll see even oil slump badly with every other industrial commodity.

Ralph - now you're starting to think. Try this:

http://www.theoildrum.com/node/8410#more

Ralph take at look at my post on Wednesdays 90@9, or just pay a visit to the USGS website for unbiased data on the world reserves of minerals.

Well oil output peaked in 2006 and oil went to $147US.....does that not signal limits to you?

Oil got to $35 after the last peak.....it can go there again.....maybe even $10...........of course Saudi etc will be collapsing at that point......

regards

 

Oil will drop in any major economic shock but a retrace to totally uneconomic levels for producers, say $35, will, if it happens, only be for a very short time. No one will continue to produce oil at a loss. The oil majors are depleting their reserves at  up to 11% annually. Exxon I think is one of very few which is just holding its own. Considering the dire debt problems faced by us all the price of Brent has been remarkably stable, IMO, and this I believe is driven by the underlying relentless depletion. That's why I put my money where my mouth is and took a big stake in an oil company where now I'm one of the private owners.

Its been posted at least twice....but an excellent interview/talk.......

regards

4 times posted : Andrew / Alex / Kunst / bourbonbill ..... you guys really wanna hang onto gloomster stuff with a grim determination !

Gummy my friend you are just way too happy. The laws administered on your beach in Nantuket or wherever.......were they written by Don Brash perhaps? ;)

Actually , it is a tadge rough on the beach today , Alex . We're in the midst of tropical typhoon Twenty . Just got the power back on after a near 4 hour break . Saturday was a 11 hour black-out .

...  some people grizzle about the power outtages , but Gummy reckons it's freaking amazing that the local power-supply works at all .

I guess you can't change alotta stuff wots changing , all you can control is how you personally react to it .

.. Life is good , when the gloomsters come out to play , they're so funny in their extreme confidence of the future armaggeddon . Bless the little gloomsterisers !

 

 No Roger -  it isn’t about gloom and doom  – he’s naming the “Shame trade” – the greedy and corrupt among so many powerfools – that’s the reason why I submitted the link.

Well im not rushing to phone to call my broker !

... a pity that you didn't , 'cos the markets shot up 3 % across the Asia-Pacific region today .

GBH: talkin of mangoes: Who does his remind you of

There were these two old time traders. Spending their days in the sun, sitting under a mango tree, drinking mango juice, waiting for the surf to come up, watching the prices go by on their laptops. When along comes a fresh-faced graduate, straight out of the Academy of Trading with a Degree in Charting and a Diploma in Technical Analysis. Knew where support and resistance were, and all the indicators, moving averages, and Gann Theory. The old-timers look at one another and pat their $2 million lines of credit. And smile. One says to the other, whaddya reckon mate, reckon we can send this one down the paint store for some striped paint. The other replies .. yeah mate, reckon we can. They reach for their mobile cell phones  

... the last fresh-faced young  technical-analysis graduate got sent down to Bunnings to buy some zinc-plated sky-hooks .

Good one , iconoclast !

hahahaha, Key is such a dick. A few months ago he said commodity prices would save NZ's ass! Now he's not so sure. Nice one currency trading parasite! Your worth your $100 mil in laughs alone. 

A bit off topic here, but I'm looking for advice where to sell gold jewellery, 22 carat variety. Does any one have experience with this? What should I look out for, what kind of price should I get relative to price of gold on the markets? Thx in advance :)