By Bernard Hickey
Finance Minister Bill English has welcomed the sharp fall in the New Zealand dollar in the last week, arguing it helped reduce the headwinds for exporters and was unlikely to push up consumer price inflation much because New Zealand's economy was competitive.
English was making his first comments about the currency since Reserve Bank Governor Graeme Wheeler's strong warning about the high currency last week and subsequent confirmation on Monday of intervention in August to sell NZ$521 million worth of New Zealand dollars.
English, who would have been briefed by the Reserve Bank about the intervention, said the Reserve Bank was likely to want to see the New Zealand dollar continue to fall.
"The Reserve Bank is probably happy to see the dollar continue to drop," English told Radio New Zealand's Morning Report on Tuesday.
English welcomed the currency's fall from over 81 USc last week to 77.6 USc overnight and that the fall had been a long time coming.
"The US economy is now being seen to recover. Interest rates in the US are likely to rise. That will close the gap a bit between New Zealand and American interest rates. That was always going to be a shift that was going realign the New Zealand dollar. We thought that was going to happen a couple of years ago. It didn't, but if you wait long enough then eventually it does," English said.
"What has been quite a strong headwind for the rebalancing of the New Zealand economy -- that is a high dollar that has made it difficult for quite a lot of our export industries to do well -- is a headwind that is reducing in strength," English said.
"For instance, the tourism industry could look to more profits and success if the dollar is in the mid 70s than when it's in the high 80s," he said, although he noted the high currency had been helpful for businesses investing in new plant and equipment.
"On the other hand we've had in recent times a lot of business investment based on the fact that exporters could afford to buy new plant and equipment because the New Zealand dollar was so high," he said.
Consumer price pressure?
English acknowledged the currency's fall may increase import prices for consumers, but he downplayed the extent of any rises.
"It's going to tend to put pressure on prices in New Zealand for anything that's imported. We've yet to see how that flows through. It seems to me an element of what the Reserve Bank was doing was taking an opportunity when price pressure in the economy has been quite low, lower than expected," English said.
"That tells you there hasn't been the pressure on consumer prices that we might have expected and we'll see what happens as the dollar drops," he said.
"I suspect we've got a very competitive economy. You are not going to see all the effects of the dropping dollar flow through to consumer prices."
English said the economy had been quite resilient to a high currency and would now become resilient to a lower New Zealand dollar.
The temperature of porridge
English was then asked about Prime Minister John Key's comments on Monday that a fair value for the New Zealand dollar, which he described as the 'Goldilocks' level, was around 65 USc.
English declined to give his own view of where the currency should be, but noted Key's views were worth listening to.
"I recall two or three years ago he said it would go to 88 USc. Everyone thought that was rubbish, but actually that's where it got to." English said.
"Last time he made a call that was out of line with the consensus, he turned out to be right."
'John Key can speculate'
English denied that the Government was specifying to the Reserve Bank where the currency should be, or that it was encroaching on its independence.
He said the Reserve Bank had acted independently.
"The Government doesn't have a view. Individuals in the Government can speculate about where it gets to," English said.
No chart with that title exists.
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Finance Minister Bill English has welcomed the sharp fall in the New Zealand dollar in the last week, arguing it helped reduce the headwinds for exporters and was unlikely to push up consumer price inflation much because New Zealand's economy was competitive.
I guess the foreign private equity scheme managers are positively drooling over the cheap easy pickings to be had from distressed farmers handing over the property as though the payday loan sharks has just done them over.
(Reuters) - New Zealand dairy co-operative Fonterra is considering launching a NZ$100 million ($77.4 million) fund in the next year which would tap external capital to lend to its farmer shareholders in the face of falling global dairy prices.
Theo Spierings, Fonterra's chief executive, said on Monday the world's largest dairy exporter is looking at ways to give its shareholders access to cash that would allow them to expand after it cut its farmgate milk price forecast to a six-year low last week. Fonterra is owned by 10,600 farmers.
looking at ways to give its shareholders access to cash that would allow them to expand after it cut its farmgate milk price forecast to a six-year low last week.
Why would you want to expand production if its uneconomic? Have we entered some kind of twilight zone, where the corporates tell us what to do and we do it? Someone is troubled, I suspect Fonterra's books are no better than its heavily indebted farmers.
Why would you want to expand production if its uneconomic?
Or to pay the bank that which it is owed - a liquidity squeeze would soon extend to insolvency - why else is there such a panic to devalue the nations net worth and make the internal assets seem cheap to the internatiional pillaging class?
Post of the (long period of time) there AJ.
This sums up perfectly and succinctly the madness out there. Growth is good. Why? Just because. Grow grow grow. And in this case, I can only guess that Fonterra seem to think that the path to never ending riches, is to grow more quickly than any other supplier and achieve total global domination. From where they can set the price. Which would be one heck of a gamble.
For background here is Rod Oram this morning on the $, the payout and Fonterra's makets & accounts.
http://www.radionz.co.nz/national/programmes/ninetonoon/audio/20151574/business-commentator-rod-oram
Cripes, it's a mess if we are to believe Oram - the Chinese housing market only adds to the declared woes.
And the US sharemarket is interesting.
Some of the largest companies have spent far more on buybacks and dividends (the preponderance on buybacks), with Hewlett-Packard spending almost double its profits in 2003-12 and Microsoft, Cisco and Intel all spending more than 100% of profits, according to the FT. Because all four companies are trading below their 2000 peaks—even though the S&P's 500 index is about 30% above its 2000 peak—the buybacks can be regarded as singularly inept investments. H-P, Cisco and Intel are almost certainly carrying a negative return even in nominal terms. It must be remembered that normal investors typically get no benefit whatever from buybacks, because they are not the ones tendering stock to the company. Management, which gooses the value of its stock options, is the only true beneficiary.
http://www.prudentbear.com/2014/09/the-bears-lair-fed-policy-makes.html
The irony to me is that I couldn't have explained the effects of the currency better than Key, English and Wheeler are now doing. Is it only me that thinks their position now is diametrically opposed to their previously articulated views, as follows?
Governments/Reserve Banks can't affect exchange rates.
The Reserve Bank is only about inflation. So much so that we won't countenance any other targets.
A lower currency will materially affect inflation.
The economy is rebalancing anyway, regardless of the exchange rate.
A higher currency is all good because it makes things cheaper, and that's great for our businesses.
You can't print money and engage in the currency wars when your interest rates are above say 0.5%.
Ironically I took them at their face value, and these were the exact reasons I wouldn't touch National with a barge pole. Their management of monetary policy and the exchange rate was so obviously populist and against the medium term interests of New Zealand, that the Labour/Greens/NZ First approaches in this space were far superior.
Lo and behold a week after the election, and everything has changed.
As it happens I'm happy that we don't have to wait 3 years for more populist damage to be done to NZ. The fact that 6 years of a GFC and currency wars has been wasted is a shame, but there we go.
It nevertheless doesn't seem an ideal democracy when a party leads presumably everyone to think they believe one thing on arguably the most fundamental area of their job, only for them to massively change tack a week after getting elected.
Maybe, it's a decision taken and made elsewhere and forced upon the domestic political incumbents post election? You noted yourself, only a few days ago, the stark choices were asset sales or debt - the later is unsustainable at current levels, hence the distressed downward revaluation of the assets for the foreign vultures. read more
We do find ourselves in good company according to the economic boffins.
Witness the Geneva Report ;
It warns of a “poisonous combination of high and rising global debt and slowing nominal GDP [gross domestic product], driven by both slowing real growth and falling inflation”.
The total burden of world debt, private and public, has risen from 160 per cent of national income in 2001 to almost 200 per cent after the crisis struck in 2009 and 215 per cent in 2013.
“Contrary to widely held beliefs, the world has not yet begun to delever and the global debt to GDP ratio is still growing, breaking new highs,” the report said. Read more
Given the state of the world economy. How could Key promise 150,000 new jobs and a booming economy? The idea that you can borrow and spend your way out of trouble has'nt worked overseas. At a time like this we need a conservative government, not one that is so willing to experiment.
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