PM says parity with Australian dollar should be celebrated; downplays effect on exporters; says their imported component costs lower

Well done to John and his team. They have steared us through the GFC safely and our high dollar is a testement to the strength of our economy. Can't think of a better place on Earth to be working and living these days. 

The NZD may overshoot AUD parity if RBA keeps cutting and RBNZ keeps holding. 

Watch wage growth rates in NZ flatline as employers see a reduced risk of losing staff to AU so see less pressure to give pay rises.  From 1.35NZ per AU earnt not long ago to 1 NZ per AU earnt today, people who moved to work in Aus (prehaps with NZ donominated debt) have seen a hefty pay cut in NZ $ terms

Key will only be right IF local businesses pass the savings on to consumers , ie lower petrol and diesel prices , and cheaper manufactured goods ,.

Our petrol and diesel  prices ( taxes and RUC  notwithstanding ) remains 50% more expensive than Aussie

In reaility , local businesses will not pass the savings onto Joe and Jane Public

The overall picture seems nuanced. Noone would advocate Aussie's route to devaluation- apparently dysfunctional and rather negative government, and most particularly, massive overinvestment in mining. Key in particular has been an effective cheerleader for NZ's economy, and that in itself is positive on the economy, and for the most part, the country's culture and sense of well being. National have not apparently blown government spending to be too high- nor did Labour before them either as it happens.

However the high NZ dollar must be having serious effects on NZ's trading industries, and a range of other countries have addressed their currencies, while still having positive economies. This effect, not just of the high currency itself, but all the capital flows associated with it, seem to be distorting the economy very considerably, and mostly negatively. Very significant sales of assets and long term wealth are clearly occurring. Property, in Auckland in particular, (and separately of farmland) seems to be the main driver of the economy, and that funded by sales of a good portion of that property to foreigners. 

For those who choose to have a parity party, at least be aware that the bill for the party could be expensive. 

The exchange rate is the most important price in our whole economy.

If the pound has not fallen after the election the Chancellor should, within a revised policy framework, consider ways of getting it lower and keeping it there, says Roger Bootle.

This article, re the pound, is in today's Telegraph, and seems timely. I could not have written it better for NZ, and the Minister of Finance needing a revised framework with the RBNZ. Bootle is one of the City's leading economists, according to the right wing Telegraph.

I note that the pound has actually depreciated against the NZD over the last 15 years by 20-30%, so if it is overvalued, the NZD is very high indeed.

http://www.marketoracle.co.uk/Article50133.html

And that’s all a big shame. New Zealand is not poor, but it’s by no means as rich as Australia or Canada or Germany or the US. What it does have is the potential to be largely self-sufficient. A potential that is being squandered in order to play with the big boys of globalized trade.

New Zealand has only 4.5 million citizens, one third of which live in Auckland. It has vast tracts of productive land that are now used to feed export oriented cows and American pines, neither of which are even native. It could have a great shoe industry, plenty of leather, and a textile industry, plenty of wool. But New Zealand, like everyone else, imports such basic needs from China. While having scores of unemployed people. When will that light go off?

The country’s prime minister since 2008, John Key, used to work at Merrill Lynch and the New York Fed, and that sort of background guarantees valiant efforts to sell anything in the country that’s not bolted down, and take an axe to what is. It also guarantees zero initiative to become self-sufficient.

But then there are many tragic countries and societies in the world who all suffer from the same maladie. I’ll leave you with some reflections by the man who I’m told is New Zealand’s best business writer, Bernard Hickey in the NZ Herald...

Agree that a high dollar is nothing to celebrate. Australia is our 2 nd biggest export market, a huge source of overseas tourists -and a competitor for domestic ones.. The damage to the export and tourism sector will be great. The aggressive interst rate stance of RNBZ must be questioned more. With  excess money being printed and low inflation globally, high interest rates make us the safest of bets for all that capital sloshing around. The myopic framework that the RBNZ operates under needs a major overhaul. 

JK is just a complete populist flip flop. 6 months ago he said a lower cross with USD would be fair rate (65c) and now is pleased we have a very high rate with Australia? 

Parity only benefits those with money already.

It is time for an OCR cut in NZ and it probably needs to be at least 1%.