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Roger J Kerr says foreign investors are not going to be positive on the NZ economy and currency if they see that the locals are so downbeat on their own prospects

Roger J Kerr says foreign investors are not going to be positive on the NZ economy and currency if they see that the locals are so downbeat on their own prospects

By Roger J Kerr*

The NZD/USD exchange rate has tested both ends of its current 0.6700 to 0.6850 trading range over this last week.

Firstly, failing to push up through the resistance level at 0.6850 and then the NZD weakening back one cent to 0.6740 due to a stronger US dollar on global foreign exchange markets.

The USD made gains against all major currencies following the Federal Reserve statement that the US economy remains robust and inflationary pressures continue, thus two further interest rate increases seem highly likely before the end of 2018.

The EUR/USD rate has moved below $1.1600 on that momentum (i.e. USD strengthening).

However, further USD gains from here appear unlikely as the tit-for-tat trade war with China escalates into a dangerous game of brinkmanship.

Whilst the Trump administration believe they will be successful in pressurising and blackmailing the Chinese into making concessions on tariffs for US goods into China, the damage to the US economy in the meantime will soon be showing up in economic statistics.

Already the ISM manufacturing index in the US is coming off as business firms experience squeezed profit margins (due to higher raw material costs from import tariff increases) and reduced investment/expansion intentions.

The US economy has performed very will in recent years due to low interest rates, lower tax rates and reduced regulations on business. The forward view cannot be as positive as the past performance as US manufacturers are hit by the unnecessary trade wars.

The latest US jobs numbers for July at +153,000 were less than the forecast +190,000, however prior months were revised upwards, so the weaker July result did not disturb the US dollar’s value.

Do not be surprised to see President Trump have another go at the Chinese and Europeans about manipulating their currencies to weaker levels against the USD following this latest bout of USD gains to below $1.1600 against the Euro. Trump favours a weaker USD currency value as that helps US exporters. A return of the EUR/USD rate to above $1.1700 should see the Kiwi dollar pushing up above 0.6800 again.

Domestic factors for the Kiwi dollar have not been positive over recent times. The collapse of yet another construction business last week does not really reflect a problem with the overall economy, more a management problem within the building industry as tendered prices for work fail to reconcile with current costs and time variables.

However, for some, these company failures may reflect weakening demand in the economy and they add to the sinking business confidence levels.

As stated previously in this column, foreign investors are not going to be positive on the NZ economy and currency if they see that the locals are so downbeat on their own prospects.

Certainly, the plummet in business confidence over the last nine months is more than just a protest vote by business folk to a left-leaning Government.

It reflects ongoing uncertainties around employment law, wages, taxes and environmental over-rides (e.g. irrigation investment and oil/gas exploration bans).

The Labour Coalition Government stated at the start of the year that they were keen to work with business in a cooperative fashion. There has been no sign of such cooperation to date and all the business community see is cabinet ministers attacking individuals at the top of our largest companies.

New Zealand Inc currently is crying out for direction and leadership, sadly it is not coming from the Prime Minister or the Finance Minister.

Therefore, the responsibility to restore business confidence for the good of the economy and jobs must fall on the likes of Adrian Orr at the RBNZ and private sector business leaders such as Xero’s Rod Drury and Synlait’s John Penno.

Former Prime Minister John Key’s recent “less than positive” assessment of global investment markets and the NZ economy did not help the gloomy mood.

There is no reason to talk ourselves into an economic downturn, it just requires someone to add a balanced view of the positives alongside the risks/challenges. High export commodity prices continue to be a major positive for the economy and currency, certainly matching-off the negative business confidence environment. An unfortunate negative environment that has been largely self-inflicted by Government inertia and decision-making vacuums.

The Australian dollar has again bounced back up again from the 0.7350 level against the USD. Metal and mining commodity prices going no lower and improving economic indicators (outside residential property value) are supportive for the Australian currency. The AUD has outperformed the NZD against the USD and driven the NZD/AUD cross-rate to the bottom of its well-established range at 0.9100. Around 0.9100 has always been a valuable forward hedging entry point for AUD exporters over recent years.



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*Roger J Kerr is an independent treasury Management advisor. He has written commentaries on the NZ Dollar since 1981. 

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the global investors are already pretty "downbeat" themselves. they don't need us to tell them that the investing boom is over.

Agree. Perhaps much of our business confidence trending downwards has to do with NZ recognising the strengthening global economic headwinds. After all, John Key said not long ago that the recent NZ economic success was more based on global factors than local genius - apart from high immigration fuelling short-term growth (and medium-term infrastructure cost). It's hardly the government that makes or breaks the economy anywhere in the world.

Hmmm. There was I thinking the USD was going to keep going up, at least for a few months as USD denominated debt gets repaid in a hurry and replaced with debt in local currencies worldwide. Capital flows usually drive currencies, the current account is just the balancing entry. Debits equal credits. So for NZ, less foreign capital sloshing in allows exporters to make a dollar as well as taking the pressure off house prices.

My guess is that this process continues and Aussie exporters start making serious money and offer wages to match. Kiwis head to Aussie, and, providing we don't replace them with new residents (fat chance, I know) we could have affordable houses. Adjustment is unpleasant though, as the bankruptcies in construction show. Parties cause hangovers, unfortunately.

Roger throws in the pink shirt

Teehee. Yes, the trouble with the socialist thought process is that just because you can see a problem doesn't actually mean you automatically know how to solve it. The possibility that things would actually be far worse if you were in charge of things you don't understand is overlooked.

This is exactly why people who rely on models from Friedman and Hayek should never be allowed to be in charge of public money. Even Marx could identify the flaws in Smith's theories. Can you identify three flaws in contemporary liberal economic policy?

There's an interesting discussion to be had there.. and does libertarianism offer any better solutions??

I might be a bit off the mark here but I think economic “libertarianism” is based around sound money and no government interference? If that’s right it sounds good to me. No QE, no manipulating exchange rates, letting failing systems and companies actually fail so we can build from a sound base as opposed to perpetually papering over the cracks. Savers won’t be crushed in the pursuit of forcing growth through speculative loans, those who already have assets won’t be unfairly advantaged.

Sound like a solution?


Every [serious] "international" or "foreign" investor I know of looks at two things.

1. Recent credit growth and trend.
2. The local currencies trend against the green back.

Everything else is simply a matter of semantics in choosing what to invest in.

Sentiment is a waste of time.

The opinion of every farmer in the country is redundant, for example, when a small group of people at Fonterra are the ones who will actually have an impact. Sentiment in any other sector is largely dependent on decisions by their respective banks. I really don't understand this seemingly new trend of using surveys as some sort of economic measure. It's like asking your kids what they want for dinner, and how they feel about their prospects of getting McDonald's or sausages and mashed potato. If you want to know what's for dinner, ask the parent(s).

"Sentiment is a waste of time"
I very much disagree with this statement

investors are looking at nz with less certainty. the us economy is growing, and we look risky by comparison.

Is it any wonder the NZD continues to depreciate? Australians our largest trading partner look at JA and Co with skeptism. They can’t understand why we would elect an unknown with no experience.

It is not up the investing public to laud her success. Labour, and the coalition need to make decisions that provide certainty, promote good business sense, and make the fundamentals of investing here a "no brainer".

Unless an investment decision is "watertight" investors will look elsewhere. The decision to pull the rug out from the oil & gas industry was extremely damaging. It has massive repercussions for the wider economy.

I expect our dollar to continue to depreciate.

The silver lining is that it will boost to exporter earnings, and dampen domestic demand. This will no doubt improve the current account.


New Zealand Inc currently is crying out for direction and leadership, sadly it is not coming from the Prime Minister or the Finance Minister.

It is a fallacy to think that direction and leadership comes from politicians.

Well, direction and leadership should definitely come from the head of state/prime minister/president. Wouldn't you say that Trump is providing direction to his country? (wether that direction is right or wrong is different matter)

If that so, Trump gives a pretty incoherent signal. My bet is that John Bolton has "righted" the ship just in time for this trade war, on behalf of the Crazies.

I'd say Chairman Mao is what you get from a country where a top-down leadership style is accepted.

Free enterprise is a much more profitable leadership platform. If you have a good product, or provide a valuable service, people will follow your lead and vote with their wallets.

Unfortunately Roger's opinion carries too much political bias - to be of any value.
Same for the Business Institute opinions - far to narrow in focus .

Wake up call!

So who employs almost all employed people , produces everything and pays almost all the taxes in New Zealand ?

Its the Productive Sector , and Ardern does not get it

Government produces nothing whatsoever.

Government does not pay tax , it takes it from the productive sector .

They are just clueless clowns and idiots who have taken over running the circus

as usual, Great piece Roger - thank you


Downturn is normal. Ecenomy cycle but more noise in NZ by Natioanl and its supporters which are mostly businessmen or so called investors (Speculators).

Talk of downturn is not only in NZ but world over.

"Roger J Kerr says foreign investors are not going to be positive on the NZ economy and currency if they see that the locals are so downbeat on their own prospects"

For once I very much agree with the author

Yes, it's a no brainer

But one cannot ignore the root causes of business concerns and just as them to remain optimistic and positive.

This CoLs has to prove that it is not (or won't be) the straw that broke the Camel's back come 2020.

What's a CoL?

Coalition of liberals.


Given who used the term.. I suspect it should end with -onoscopy. It might find the problem with him.

Short REITS and the Banks P&L on the way down

Long US banks and energy , and short banks in countries with inflated property markets....

'No reason to talk ourselves into a downturn' mmm
Like I've suggested before, we have 1/3 of the country up to their eyeballs in mortgage debt (many won't be able to repay before retirement). 1/3 up to their eyeballs in personal loans and finance and struggling to pay the rent and the final 1/3 too tight to spend to pick up the slack but needing the income from the rent they receive to fund the retirement lifestyle, I would suggest that now that we've reached 'maximum credit', the well off third may have to pick up the slack and spend a few quid. The banks are also now realising that they've over-egged the property pudding and possibly leant a bit too much. Hence it is not about ' talking ourselves into a recession' but being sensible enough to realise that the current conditions make one highly likely in the medium term. I wonder if the SUV sales high last month and spending on plant for agriculture is a result of sensible 'forward purchasing' before these goods become a lot more expensive when the dollar weakens? We'll see I guess, but if I needed those things for my business I'd be doing it now rather than next year and I'm sure I'm not alone in that thinking. It's called preparing yourself for a rainy day (or year or so perhaps).

That's a good concise analysis, thank you. Agree banks have probably been a bit zealous with unsecured credit. The new 'responsible lending criteria' does not seem to mandate any means assessment be done. Banks can still issue credit without determining a person's expenses, and base credit solely on income -- regardless of cost of living increases.

The irony of saying we shouldn't talk down our economy, then talking down the economy and indulging in political rhetoric is not lost on me.

This nonsense about Labour not being involved with businesses is BS. Maybe they're just less involved in uneconomic ones? There's a young entrepeneur scheme in store with $20k grants on offer, and R&D tax credits are coming back after National slashed those. In the IT sector privacy law reform (which National were belligerant in stalling the progress of), creates opportunities in the infosec service industry. There's also funding being thrown at Dunedin's software and game development industry.

Emotive BS like 'crying out for leadership' makes the author's political bias pretty damn clear to me.

I think Stuart you make the mistake that just becuase the government is doing something then it must be good. Take the R&D tax credits; the reason why this is not a good idea is the same for any tax break. More and more of what a business does will be catergorised as "R&D" but no new R&D is actually undertaken because of the break. Also I am not sure I have much confidence in any government that throws funding around.

NZD to settle sub 65 US cents & if somebody said to me that it could start with a 5 in twelve months time, I wouldn't be surprised.

Those types of levels would make life pretty interesting for the importers of spa pools, SUV's, electrical goods, home furnishings... time to buy a farm then? Oh no, we've already sold those to the Chinese, bugger!

Yeah I believe somewhere in the 50's is very likely (75% + chance) within the next 12 to 18 months, and that belief is based on modelling various international scenarios. I wouldn't be surprised to see 40's by 2020, but that would require some highly unlikely scenarios to manifest.

Well Roger J Kerr , I have news for you.

We have a client of our practice who supplies valves to the oil and gas sector .

Their Company taxes were in the millions in 2017 .

Now orders are drying up , and their chief engineer is going to relocate back to Aussie from New Plymouth.

They reason he can do his job from over there , and if the NZ arm of the business closes they dont wan to lose him

Now they dont know where they stand with the Government

This idiot rag- tag coalition masquerading as a Government is 100% to blame for the mess its in .

We had an inquiry come floating through our office a few weeks back from a very large gas exploration company looking to price up a tonne of replacement valves. Not commodity junk valves, but ones with Viton Seats and hydraulic actuators.