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90 seconds at 9 am with BNZ: NZ dollar hits post float high vs pound; Key comments on currency; US jobs growth

90 seconds at 9 am with BNZ: NZ dollar hits post float high vs pound; Key comments on currency; US jobs growth
8th Nov 10, 8:59am by Bernard Hickey

Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news the New Zealand dollar hit a post-float 25 year high of 49.2 British pence over the weekend.

The New Zealand dollar rose to 79.7 US cents late on Friday and the Trade Weighted Index (TWI) rose to a 30 month high of 70 as the Currency Wars raged in earnest in the wake of the US Federal Reserve's decision last week to try to print US$600 billion to rescue the US economy.

Meanwhile, Prime Minister John Key has commented that there appears little can be done about the damaging effects on New Zealand manufacturing exporters of a strong currency.

Key said interventions could prove expensive and ineffective. He said exporters would just have to 'wait and see'. See more here.

Meanwhile, US jobs figures were stronger than expected on Friday night. Jobs growth of 151,000 was better than the median economist forecast of 60,000, but was still not enough to reduce unemployment significantly.

The unemployment rate remains stuck just under 10% and the wider unemployment rate, which includes part timers wanting full time work, is stuck at around 17.1%.

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18 Comments

by  Andrewj  |  8th Nov 10, 9:23am 1289161397

Meanwhile back on the farm, 3 farmers got dumped by the bank on Friday, in this tiny part of rural NZ.

The Apple boys have a few issues

http://www.stuff.co.nz/business/farming/4312000/Apple-growers-get-the-p…

 

And this industry is rolling over

http://www.stuff.co.nz/business/4317042/Worlds-wine-glut-claims-more-NZ…

 

The Crownthorpe vineyard is in a bad area, it stuggles with frost early in the year and ripening at the other.  Talked to a friend with an engineering business employing 6 people, out of work nothing no one is spending.

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by  andyh  |  8th Nov 10, 9:59am 1289163552

Is the QV data out this week?

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by  Gareth Vaughan  |  8th Nov 10, 10:03am 1289163797

Yes Andy, around midday today.

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by  Wolly  |  8th Nov 10, 10:14am 1289164447

We were told and told again by Key and English that the export sector would save the economy..bring 170ooo new jobs ..etc etc...only to discover all the blather was based on a gamble that commodity prices would skyrocket. The real market has dumped on that pipe dream.

This is the new and permanent economic reality....feeding the aussie and foreign banks year after year...being farmed by the banks. That situation cannot change until the loans are paid off. Paying the Elephant off demands surplus income. You don't get that when you are always using what surplus you earn to pay the interest on the debts.

So now you know why the govt is looking to sell what's left. But they also have to stop borrowing a billion a month...adding to the Elephant. And the banks have to be forced to let the residential and rural property bubbles deflate. Time will not hide the losses. Devaluing the Kiwi$ at 30% every decade will not hide the losses.

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by  Roger Witherspoon  |  8th Nov 10, 11:12am 1289167928

On the currency front, what happens if the Reserve Bank buys gold with new dollars?

This would inject NZD into the system and so be inflationary, but this is offset by the high currency which is disinflationary.

As the currency falls it can stop buying gold and creating dollars.

Doesn't the country end up better off in this scenario?

 

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by  Chris B  |  8th Nov 10, 11:16am 1289168160

In short - yes, a good idea. - and it might not even be very inflationary as the printed $'s will have to be spent overseas to buy the gold. The question is how easy it is for them to get back onshore and whether the RBNZ can mop them up when they turn up. Given that we need a good dose of (wage) inflation to clear up a lot of private debt this is not a problem either way.

If idiots overseas are willing to give us hard metals for our worthless paper then lets make them happy......

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by  andyh  |  8th Nov 10, 11:20am 1289168452

Indeed. Gold priced in NZ$ is a relative bargain (and bought @ these levels is a wonderful hedge against a falling kiwi $ which will no doubt happen some point down the track)

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by  GPac  |  8th Nov 10, 11:27am 1289168832

With Central Banks turning into net gold buyers this last year, it wouldn't be a bad idea for NZ to follow suit.

I always thought there should be a KiwiSaver option to invest in gold for the same hedging reasons.

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by  Nicholas Arrand  |  8th Nov 10, 11:30am 1289169004

A good dose of wage inflation? Is there such a thing? I guess we could recycle the wage rises into our manufactured goods, and charge each other more for the same thing; and charge our export clients more for the same......Hang on! Isn't the States devaluing it's currency to compete against 'our' exports without increasing their domestic wages regime? So that's our exporters with a higher wages imput, and a stronger dollar, to compete on the world markets with....? What we actually need is an Ireland type dose of wage cuts....and lower taxes...to allow our exporters to get going.

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by  Chris B  |  8th Nov 10, 11:46am 1289170016

our exporters with a higher wages imput, and a stronger dollar, to compete on the world markets with....?

Two things to note:

1) Such a thing as "good inflation"? -  this is playing with fire I agree, and you can call it "wage growth" if you like. But basically we need to lift the average wage whilst people do broadly similar jobs as currently, because otherwise the whacking great private (ie. mortgage) debt is never going to be paid off, and we are going to experience a japan-like zombie double-decade. Now, you can do it by artficially holding the OCR low and blowing yet another borrowing   bubble - or you can intervene in the FX market and try amnd make some structural changes to the sources of income for the NZ economy.

2) The above proposed cause of action is predicated on the notion that the initial act of introducing printed money will have led to a sustained drop in the FX rate, (against a basket of major importing nations - of which the US is actually only one component alongside larger weightings from Aus and increasingly Europe, Asia and the middle East). And at the same time we will actually have some hard metal reserves again - which i personally think we are going to seriously need in the next 5 years.

It is important to note that the US is neither our major export market nor directly competing with out products on the world market (US milk and timber all stay in the US!). As long as weremain competitive in other markets we can largely ignore them, as they jump down the abyss of their own making.

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by  Nicholas Arrand  |  8th Nov 10, 11:51am 1289170293

Chis, we need to pay of the 'wacking great mortgage debt' with productivity, not by 'doing broadly similar jobs to currently,'. That's the problem, and will continue to be if people  en- masse get it into their heads ( more than now!) that they can borrow and 'not repay' by having the debts inflated away. That's why the greater part of the Western world this in this pickle! We didn't work, and those that did are not going to be happy about having their accummulated savings in US Treasuries inflated away. Ther is too much debt, this time, to inflate it away with any kind of wage or prices rise. Last time, our collective debts wer probably half what they are now. We had room to borrow, and inflate, to 'slove the problem'. Did we? No. And this time our last alternative answer, print and inflate, can't work.

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by  Chris B  |  8th Nov 10, 12:14pm 1289171682

Ahh - so its actually all about a presbyterian crusade to reinstate the work ethic - so much easier than fiddling about macroeconomic settings! :-)

But seriously,

we need to pay of the 'wacking great mortgage debt' with productivity

Productivity at what? We are already just about up at the limits of productivity with regard to dairy and timber. Long term, we absolutely need new, and highly productive, export industries. But they will require investment and that requires surplus cash and at the moment all we have is an enormous surplus debt. So one step at a time.

The other probelm is that the vast majority of the workforce do not actually participate in export earning work . These are people who hold the private mortages that are the source of the debt.... Now, to raise wages in the retail sector (for example) you need customers to hand over more $'s at the checkout. This might mean selling 3 bread rolls a day instead of 2 - but more likely it means charging more for the 2 bread rolls that are all the customer actually needs. This story is true throughout the internal economy and without wholesale retraining of the adult workforce the structure of the NZ economy can only change over decades - not by next year! now bread costs more but wages are higher - so no major damage doen but importnantly the ratio of debt/income for the checkout cashier has just been reduced as her wage went up whilst the debt capital remained as before.

Now bank mortageg rates also play a part in this story - its easy if you're china and you just say to the banks"mortgage rates ill be X or you go to jail". In NZ the banks are a law unto themselves, so its just as well we have a state-owned kiwibank to ensure a floor on the high street market (yes we might have to throw some more capital at them - it'll be worth it in the end and the country will probably even make a profit in NZ$).

In the end, its about maintaining a stable environemnt in which productive businesses can get established and then thrive. Once the NZ$ reflects actual trade balances AND we have worked off the overhanging debt, we can get cracking on the productivity drive - but triage comes first!

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by  Nicholas Arrand  |  8th Nov 10, 12:17pm 1289171823

Given the SCF debacle, I'm not sure Presbyterian anything works! But broadly, your sentiments are correct. But my slant is, that we can't produce more to be more 'productive', so we have to lower our wages input to create  the same effect. Lower wages; lower taxes and reduce public spending. There. What's wrong with that? Oh, the wacking great mortgae debt, of course! Well that will just have to repaid more slowly from harder work, won't it. The reality is that "The East" is going to meet "The West"; that's their wages and quality of life up; ours down, until they normalise.

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by  Roger Witherspoon  |  8th Nov 10, 1:07pm 1289174855

My thought was that it might be a useful step that the RBNZ could do without causing big trouble. It would fit with their inflation mandate and their financial stability mandate. Most importantly it would fit with National's incremental change policy.

Personally I'm drawn to making radical change to address the real problems now (eg 20% wage cuts to all public sector employees earning more than $120, 000 pa, with immediate effect. Get to the heart of the matter.) However, National have gone for a more softly softly approach of steady change that sticks. I just hope it works, and so far it does seem to be doing so.

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by  Gareth Vaughan  |  8th Nov 10, 12:27pm 1289172427

Worries for the Kiwifruit industry, this from Zespri.

MAF Biosecurity New Zealand (MAFBNZ) is investigating a report of symptoms of disease on kiwifruit vines on a North Island kiwifruit orchard. A preliminary test has suggested that a strain of the bacterial kiwifruit vine disease, Pseudomonas syringae pv actinidiae (Psa), may be present on some vines on the orchard.



MAFBNZ is working closely with ZESPRI, Plant & Food Research and New Zealand Kiwifruit Growers Incorporated (NZKGI) to confirm whether the vine infection is Psa – this should be known by Wednesday.



Precautions have been taken to mitigate any risk of spread, including issuing a Restricted Place Notice on the orchard, while MAFBNZ and the kiwifruit industry await test results.



All parties are taking the suspected threat seriously and are acting quickly to minimise the risk. If Psa is confirmed, MAFBNZ will work with ZESPRI and NZKGI to implement an agreed action plan.



In the meantime ZESPRI is working with the industry to advise of the current situation, understand how widespread the issue may be and encourage best practice orchard hygiene. Psa carries no risks associated with human or animal health, and does not affect plants other than kiwifruit vines. This is about the health of the vines, not the health of the fruit.



--- ENDS ---


About PSA

  • Pseudomonas syringae pv actinidiae (Psa or batteriosi) is a disease that affects kiwifruit (Actinidia)
  • It was first identified on green kiwifruit vines (Hayward) in Japan about 25 years ago
  • Psa has never been confirmed as being present in New Zealand
  • Psa was first identified on green kiwifruit vines in Italy in 1992 and has caused substantial

    damage to both green and yellow-fleshed kiwifruit in recent years
  • Psa is also present in Japan and Korea where the disease is controlled by implementing

    appropriate agriculture practices 
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by  Wolly  |  8th Nov 10, 1:11pm 1289175068

 "A kiwifruit orchard is under quarantine after the discovery of a disease which may be the same as that which has caused substantial damage to green and gold fruit in Italy." herald

And what did KiwiF exports amount to in the last financial year? $1500oooooo

 

"Biosecurity Minister David Carter has just issued a statement reassuring kiwifruit growers that the Government was "treating the discovered vine infection on a North Island kiwifruit orchard very seriously, and is making all necessary resources available."

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by  Gummy Bear Hero  |  8th Nov 10, 1:20pm 1289175619

Geeeeez , it'll be another 80 years before you can export another hairy-berry into Australia . Bugger ! ............ Here , have a Queensland tomato to nibble on .......... cheer you up .

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by  KW John  |  8th Nov 10, 2:25pm 1289179507
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