What happened Wednesday

A review of things you need to know before you go home on Wednesday; another mortgage rates dips below 2%, wider C/A deficit, dairy prices slip, log prices up; carbon prices up; swaps and NZD stable, & more

16th Jun 21, 3:59pm by David Chaston

Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
BNZ and the Cooperative Bank cut short rates, with the Coop bank cutting their FHB special to 1.99%. More here. The Coop Bank also raised its longer term rates.

TERM DEPOSIT RATE CHANGES
No changes today.

WIDER DEFICIT, BUT STILL VERY MANAGEABLE
Our current account deficit blew out in Q1-2021 to -2.2% of GDP, mainly because our services surplus essentially vanished. Analysts expect the current account is now in a worsening track in 2021. But it wasn't all bad news; our foreign net liability position (IIP) improved and sharply, with Stats NZ noting: “The liability position is the smallest it’s been in a couple of years, but what’s really interesting is how much it shrank this quarter. It’s the biggest quarterly change in New Zealand’s liability position in over 20 years.” We get the Q1 GDP economic activity data tomorrow and observers expect a +0.9% year-on-year expansion (and above the pre-pandemic activity levels).

ANOTHER SLIP
Dairy prices fell -1.3% at today's auction in US dollars although the strengthening greenback eliminated the fall in NZD.

THE DTI ARM WRESTLE INCHES FORWARD
The Finance Minister agrees 'in-principle' to give the RBNZ debt-to-income regulatory tools, but he is still 'discussing' with them how the impact on first-home buyers would be minimised. More here.

LOG PRICES UP
The global shortage of logs and sawn timber have pushed prices to a record high. Regulatory limits are encouraging the surge when there is a worldwide shortage of wood products. Local timber buyers haven't get really felt the impact of these higher international prices, but they will soon.

CARBON PRICE UP
The carbon price reached $41.20/NZU as its bull run continues, up +12% in June so far.

GOLD'S RETREAT EXTENDS
Compared to this time yesterday, the gold price is down -US$7 and now at US$1856/oz in early Asian trading. It closed in New York earlier today at US$1859/oz and in London at US$1865/oz.

EQUITY MARKETS MEANDER
The S&P500 closed with a small downer session, -0.2% and was lower for almost all the day. Tokyo has opened with a -0.3% fall in early trade, and Hong Kong has opened down -0.2%. Shanghai's mood isn't much better, down another -0.5%. The ASX200 is up another +0.3% and a new record high. The NZX50 Capital Index is down -0.4% in late trade.

SWAP & BONDS YIELDS STABLE
We don't have today's closing swap rates yet. If there are significant changes again today, we will update this item. They probably held. The 90 day bank bill rate is unchanged at 0.32%. The Australian Govt ten year benchmark rate is up +4 bps at 1.49%. The China Govt ten year bond is down -1 bp at 3.15%. The New Zealand Govt ten year is up +2 bps at 1.67% and now above the earlier RBNZ fix of 1.65% (-2 bps). But the US Govt ten year is up +2 bps to 1.50%.

NZ DOLLAR UNCHANGED
The Kiwi dollar is still holding at 71.4 USc. Against the Aussie we are little-changed at 92.8 AUc. Against the euro we are still at 58.9 euro cents. That means the TWI-5 is still at 73.2.

BITCOIN SLIPS
The bitcoin price recent rise isn't holding and it is now at US$39,909 and down a minor -0.8% from this time yesterday. Volatility in the past 24 hours has been moderate at +/- 2.2%.

This soil moisture chart is animated here.

Keep ahead of upcoming events by following our Economic Calendar here ».

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

48 Comments

by Justa comment | 16th Jun 21, 4:03pm 1623816182

RBNZ considering DTIs at 6 or 7. So basically ineffective. What a joke.

by JimboJones | 16th Jun 21, 4:51pm 1623819109

Its too late for a lower level. A lower level would drop house prices but it would also lock out FHBs so what is the point? Had DTIs been set at say 5x 10 years ago we might not be in this mess now.
But at least 7x or similar would stop a lot of speculators.

by Justa comment | 16th Jun 21, 5:11pm 1623820304

So do a DTI limit of 4.5 for INVESTORS, 6 for FHB.
In England a DTI of 4.5 was adopted for prudent (safe) lending.

by WellingtonInvestor | 17th Jun 21, 1:47am 1623851272

And prices over there are about half what they are here. NZ has a big problem and it has been caught with its pants down.

by Justa comment | 16th Jun 21, 5:13pm 1623820411

JJ - but yes your right, they should have done it ages ago.

by Nifty1 | 16th Jun 21, 5:48pm 1623822507

Probably what banks are already applying on applications any way right? I suspect this will be another labour/rbnz PR stunt to make it look like they're doing something.

by mfd | 16th Jun 21, 5:58pm 1623823135

No, absolutely not. This is a new approach.

"The Reserve Bank said that as of March 33 per cent of investor borrowing, but less than 7 per cent of borrowing by first-home buyers, was at a DTI of more than seven."

https://www.stuff.co.nz/business/125458249/reserve-bank-gets-new-tool-t…

by Ezy | 16th Jun 21, 4:16pm 1623816965

For those who are sick of the shill pieces of rubbish around BTC that they seem to regularly post on this site, here's some real journalism from today about the adoption of BTC in El Salvador https://www.wsj.com/articles/a-global-first-bitcoin-as-national-currenc…

// Edit [paywall] - it's the WSJ article in this Google search link

by JimboJones | 16th Jun 21, 4:22pm 1623817330

They need to decide what currency is everything denominated in don't they? Can you really have two currencies (one of which is highly volatile)? Why would anyone lend money for example if it can be paid back in another currency at a lower value? Its just a bonkers move from a desperate country. If they made it their only legal tender currency then that would be kind of significant.

by Ezy | 16th Jun 21, 4:30pm 1623817827

Who is this "They" you speak of? I know we seem to have gone and forgotten what capitalism actually is in the West, but the market will decide. Each individual has a different risk profile, and they'll act accordingly. Depending on the time frame that risk profile changes - BTC is increasing in value on average by 200% YOY for the last 12, and the USD is decreasing in value by about 10% YOY. So if you're saving to buy something without time pressure BTC is the obvious choice, whereas if you have to buy groceries next week USD is. Not that hard to grasp really.

To deal with bitcoin’s wild price fluctuations, the legislation establishes a free-floating exchange rate determined by the market. If someone immediately transfers his bitcoins to dollars when he receives them, then it shouldn’t matter how volatile the exchange rate is because he’ll always have the equivalent in dollars. Salvadorans are free to hold their savings in either currency; the legislation simply puts bitcoin on par with the U.S. dollar and doesn’t disadvantage the cryptocurrency with higher transaction costs.

by JimboJones | 16th Jun 21, 4:36pm 1623818172

Do they accept Dogecoin too? Why stop at Bitcoin?

by JimboJones | 16th Jun 21, 4:46pm 1623818810

"So if you're saving to buy something without time pressure BTC is the obvious choice, whereas if you have to buy groceries next week USD is. Not that hard to grasp really."
So fiat will remain the day to day currency and BTC will be a form of investment - isn't that just like every other country in the world?
I don't mind the idea of crypto becoming legal tender as long as the money supply can grow with the economy. But when the supply is almost fixed, isn't it just incredibly deflationary?

by Ezy | 16th Jun 21, 5:16pm 1623820585

So fiat will remain the day to day currency and BTC will be a form of investment - isn't that just like every other country in the world?

With the exception of BTC being treated as a currency with no tax on capital gains, I guess that'll be the case, unless/until the USD money printer implodes.

Edit //

I don't mind the idea of crypto becoming legal tender as long as the money supply can grow with the economy. But when the supply is almost fixed, isn't it just incredibly deflationary?

We've got a metric shit tonne of debt to honour, so the next 20-30 years until we get back in balance are probably going to be pretty grim but the piper has to be paid - Link. Either that, or the human race will cease to exist due to the hard bounds of our finite system and consequences of climate change.

by KH | 16th Jun 21, 5:17pm 1623820657

"...... For those who are sick of the shill pieces of rubbish around BTC that they seem to regularly post on this site,.... '
I am sick of it, but it' s the shill promoters of bitcoin I am sick of.

by Carlos67 | 16th Jun 21, 5:33pm 1623821592

El Salvador should have just gone US Dollars in fact they probably tried but my guess is that the country is so stuffed people began printing it themselves. Lets face it they are stuffed, as are so many other countries. Expect a string of others to adopt Bitcoin as well. Perhaps thats its final destiny, a whole load of already corrupt countries being the only ones using it after the FED releases a digital currency.

by frazz | 16th Jun 21, 6:05pm 1623823528

Just shows how ignorant your comments are Carlos - they already are on USD.
"El Salvador abandoned its own currency (the “colon”, named after Christopher Columbus) in 2001 and adopted the US dollar as its legal tender. This process of “official dollarisation” was seen as a reform that would curb inflation and increase trade with the US (by far its major trading partner).

I don't say this often but this site would be better off without your dribble.

by thewanderer | 16th Jun 21, 9:16pm 1623835013

I like how they got rid of their literal s@*t currency and are now getting a new one:-)

by gnx | 16th Jun 21, 6:07pm 1623823678

I think you will find a lot of countries are tired of losing 5% in fees that go offshore... a large part of the world survive on western union transfers... the eftpos system is close to a monopoly

by J.C. | 16th Jun 21, 6:27pm 1623824843

Cheers Ezy. I subscribe to WSJ. I don't subscribe to Granny Herald.

by Audaxes | 16th Jun 21, 7:13pm 1623827634

Back in the day (~1982) when I was seconded from London to secure my Series 3 – National Commodities Futures Exam ticket I used to read the WSJ on the subway downtown. I was shocked when they reduced the reading comprehension levels of the articles from 12 to eight year olds.

by J.C. | 16th Jun 21, 7:37pm 1623829028

Not necessarily a bad thing Audaxes

by Audaxes | 16th Jun 21, 8:06pm 1623830794

LOL - some of the local futures pit traders the bank employed then had virtually nill education, but were savvy in other ways.

by iconoclast | 16th Jun 21, 4:29pm 1623817758

If they wanted to get smart :- they could and probably will adopt a split system
x5 times for Investment properties and x7 times for non-FHB home-owners and x9 for FHB's

by JimboJones | 16th Jun 21, 4:37pm 1623818239

I think RBNZ ruled that out. Not sure why. We already have different LVR for investors...

by iconoclast | 16th Jun 21, 4:57pm 1623819456

If the proposed DTI's don't have any effect Ardern will panic and tell Robinson to tell ORR to do it
To heck with molly-coddling the banks

by Audaxes | 16th Jun 21, 5:12pm 1623820349

The global shortage of logs and sawn timber have pushed prices to a record high. Regulatory limits are encouraging the surge when there is a worldwide shortage of wood products. Local timber buyers haven't get really felt the impact of these higher international prices, but they will soon.
Lumber Prices Post Biggest–Ever Weekly Drop With Buyers Balking
Lumbering Economy And The Curves Behind Transitory Inflation

by Yvil | 16th Jun 21, 6:08pm 1623823710

I have attended Bayleys auction this afternoon and am at Ray White's auction right now, the market is still red, red hot. Bayleys had 100% sales rate (out of 6 only) and here at RW multiple bidders are fighting with each other as if the $ millions offered were given to them. It seems money has no value anymore. Huge bids made for really poor houses. A single car park in went for $170'000...

by Audaxes | 16th Jun 21, 6:13pm 1623824021

It seems money has no value anymore

Time for working citizens to revolt and revoke acceptance of it for services rendered.

I gave it up for that purpose back in 1998 - money was debased then and it is more so today.

by Ezy | 16th Jun 21, 9:53pm 1623837184

I can't fathom how so many crypto haters on this site can say 'fiat is now worthless' and 'CBs have lost the plot' out of one side of their mouth, and 'bitcoin has no real world application' out the other. Honest question, can someone please explain this to me?

by custard | 16th Jun 21, 6:48pm 1623826137

"It seems money has no value anymore. Huge bids made for really poor houses."

If something appears in endless abundance and is basically free – it tends to be squandered.

by Audaxes | 16th Jun 21, 7:20pm 1623828012

It's not available in endless abundance globally and locally.

High quality borrowers (collateralised residential mortgage loans, monetised government debt issuance) are given as much money as they could want while the rest of the economy is deprived of funds; liquidity and safety being the only preferences in what sounds entirely familiar.

by custard | 16th Jun 21, 7:46pm 1623829611

“while the rest of the economy is deprived of funds”

Agreed –there’s a real economic / social travesty being played out in front of our very eyes - and quite sadly those with hands on the levers appear completely disinterested in doing anything meaningful about it.

by gnx | 16th Jun 21, 8:47pm 1623833275

Custard the rest of the economy lost its voice.

For some background the Employers and Manufacturers joined with other regional business groups some twenty years ago.

They decided to form Business NZ to give them a stronger voice in Wellington.They chose a CEO who just so happened to come from Westpac....Phil OReilly.

They have spent the last ten years denying that our manufacturing and real economy is being stripped....remember the manufacturing crisis pushed by John Walley?

Phil moved on and they got a new CEO who is Kirk Hope...also ex Westpac and also ex CEO of the NZ Banking Association.

Phil now chairs OECD committees and is aligned to god only knows who...probably no one but his clients for his lobbying business, and his ego.

The EMA has a board.Andrew Hunt is chair and is on the board of the National party. Fletchers have a revolving seat sarc, Dave Thomas (GIB) resigned but Daniel Welsh (Winstones) has taken the seat. Jenny Shipley is a director for a chinese business called Alpha Group...and their GM is on the board.I could go on but maybe you can see a trend.

Membership fees are paid on the number of employees one has...so if you employ seven thousand staff as say a bank does , a construction conglomerate or a council you have a certain say...or incentive to not say anything but go with the ride.

What hundreds of battler kiwi businesses say or do doesn't really matter....IMO...but maybe Im cynical and these people really are the best of the best who have risen to the top to lead NZ to victory in business in a golden era.

Surely they wouldn't have lead us to the slaughterhouse?

by JimboJones | 16th Jun 21, 8:11pm 1623831076

The irony being there is probably not much more risky lending these days than a low equity million dollar plus house purchase of some crap hole. These loans barely make sense at current interest rates, what if we do get real inflation, there is no way some PI can pay the interest if interest rates double or triple and rents don’t.

by Yvil | 16th Jun 21, 8:24pm 1623831881

Ray White's auctions are now finished too, sold 8 out of 8, add the Bayleys auctions and that's 14 out of 14 a perfect 100% clearance rate, all with multiple bidders. A tiny old flat in poor condition in Royal Oak described by the auctioneers as "entry level" on a cross lease sold for over $1 million!!! I've been buying and selling real estate (not as an agent) for 25 years, I've never seen anything like it, not even in the 2004 - 2007 period.

Where do so many purchasers get such huge amounts of funds from to spend such incredible sums of money ?

by JimboJones | 16th Jun 21, 8:12pm 1623831157

It’s classic bubble territory. FOMO to the extreme.

by Yvil | 16th Jun 21, 8:21pm 1623831703

Yes agreed but then we could say that NZ houses have been in "bubble" territory for years and whoever refrained from buying as a result has missed out really badly.

by camnz | 16th Jun 21, 8:47pm 1623833246

Hi Yvil,
Do you have a link to that property?
I have a friend who lives around there. Might be time she has a think about life plans and releases some capital.

cheers

by Yvil | 16th Jun 21, 9:10pm 1623834641

569B Mt Albert Rd, Royal Oak

by camnz | 17th Jun 21, 8:28am 1623875331

Thank you :)

by WellingtonInvestor | 17th Jun 21, 1:51am 1623851462

There is something very odd going on. But the government and RB seem to want to wait for a year to see what happens. Oh great, NZ is an experiment.

by richard1965 | 16th Jun 21, 6:35pm 1623825339

Guess which country tops the list and credit for it goes to our favourite Jacinda Arden.

https://www.bloomberg.com/news/articles/2021-06-15/world-s-most-bubbly-…

by JimboJones | 16th Jun 21, 7:16pm 1623827806

Yet we keep hearing from Ashley and the PI brigade that our market is working well and it can never go down. There is going to be one hell of a crash if interest rates do go up.

by custard | 16th Jun 21, 7:13pm 1623827636

https://www.cnbc.com/2021/06/16/uk-inflation-jumps-past-bank-of-england…

“UK inflation jumps past Bank of England target, hits 2.1%”

“Governor Andrew Bailey and most colleagues say the increase in inflation will be temporary and does not require the central bank to scale back its huge stimulus programs. It is expected to leave policy unchanged on June 24 after its latest meeting.”

But many of these price increases will basically stick – they won’t unwind – so unless matched with wage increases purchasing power is now diminished.

Diminished purchasing power leads to economic slowdown – Central Banks respond by lowering interest rates yet further – and on we go.

by Jonny.Foe | 16th Jun 21, 9:43pm 1623836589

If wages do not increases, prices come back down. What you’re missing is that inflation is always a redistribution - if someone is paying more, someone is getting more.

by richard1965 | 16th Jun 21, 7:22pm 1623828123

Check how hot the market is and Robertson and Orr playing with time - Months before DTI could be introduced....really months...

https://www.oneroof.co.nz/news/townhouse-on-cross-lease-section-sells-f…

by Yvil | 16th Jun 21, 8:19pm 1623831563

Yep and there were plenty more like that in tonight's R W auctions… where do people get so much money from to bid up prices to such stratospheric levels ?

by custard | 16th Jun 21, 8:38pm 1623832739

Perhaps banks’ lending on existing equity which itself is already based on stratospheric levels – subsequently taking prices to ever further stratospheric levels – then rinse and repeat until it simply can't work anymore.

As to why they’re doing it you’d have to ask the bankers themselves – after all, aren’t they the smartest guys in the room?