90 seconds at 9 am: NZ$ high

90 seconds at 9 am: NZ$ hits 1 year high vs A$ of 80.6 Ac after slightly surprising RBA rate cut; Milk powder prices fall 0.9%; US stocks down on Spanish doubts

3rd Oct 12, 8:59am by Bernard Hickey

Here's my summary of the key news overnight in 90 seconds at 9 am, including news the New Zealand dollar spiked to near a one year high of 80.6 Australian cents overnight after the Reserve Bank of Australia surprised some in the markets by cutting its official cash rate by 25 basis points to 3.25%.

This narrowed the gap between Australia's cash rate and New Zealand's Official Cash Rate at 2.5% by 25 basis points to 0.75% and made the New Zealand dollar relatively more attractive. The rising New Zealand dollar also reflects in part the differrent economic outlooks on both sides of the Tasman.

New Zealand's 'soft' commodities such a dairy, meat, logs and fish have been rising in price in recent months due to droughts restricting production elswhere, while prices of Australia's 'hard' commodities such as iron ore and coal have fallen because China's economy is experiencing a hard landing. This is reducing demand for steel and concrete, both of which use Australia's iron ore and coal.

Economists now see a good chance Australia will cut its interest rates again on Melbourne Cup Day on the first Tuesday in November. A stronger New Zealand dollar is making it more difficult for manufacturing exporters here and New Zealand tourist operators targeting Australian tourists. The New Zealand dollar has risen from 77.5 Australian cents to over 80 Australian cents in the last month. See more here in Mike Jones' currencies report on our site.

The ANZ Commodity Price Index released yesterday showed New Zealand's commodity prices rose 3.5% in US dollar terms in the last month, largely because of the worst US drought in 50 years.

However, the fortnightly auction overnight of milk powder on Fonterra's trading platform showed a 0.9% fall in prices, which was the first fall in 5 auctions. Prices remain 50% above their mid-May lows. See results here.

Meanwhile, US stocks fell around 0.4% after Spain's Prime Minister prevaricated about when Spain would ask its Euro-zone partners for a bailout. Markets are hoping for a bailout request soon because that would allow the European Central Bank to unleash its 'Big Bazooka' of unlimited bond buying to calm Euro-zone bond markets.

See more here at Reuters.

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34 Comments

by Andrewj | 3rd Oct 12, 10:02am 1349211754

UK hooked on debt, PIMCO boss warns Britain is part of a debtor nation “ring of fire” where bondholders are at risk of being “burned to a crisp”, the head of the world's biggest bond house has warned.

http://www.telegraph.co.uk/finance/economics/9582547/UK-hooked-on-debt-…

drjonathanwilson

28 minutes ago

No, Bill it is not debt that we are hooked on but rather socialist redistributionist consumption economics that give rise to debt and no corresponding human or physical assets by which economic growth can repay the debt.

Socialist consumption of redistributed wealth without replacement pure and simple - that needs to change first and soon.

But I do not see any high profile British politicians advocating radical reductions to the size of state spending combined with a radical reduction in taxes for the productive.

Even Mr. Warner and Mr. Evans-Pritchard refuse to discuss such a policy mix. And if there is no support for a small state taking little and promising little at the Telegraph you can be sure that there is no support elsewhere.

Bill, you are right - you could see your sovereign investment fund collapse in value due to a lack of politicians that you could back and trust to do the right thing in rolling back the socialist welfare state that has been the UK since WW2.

Jonathan

by Chris_J | 3rd Oct 12, 1:57pm 1349225874

Hugh, to illustrate the frame fiasco: consider the infamous Calender Girls building.

Virtually brand new and undamaged, with a market value of around $5m for the building alone. $2m for the fit out.

It would cost the Government $7m to buy out, plus any associated relocation costs and demolition costs perhaps another $1m.

So $8m to buy 200m2 of land with a market value of $300,000.

How is that good use of taxpayer money?

For $8m: numerous heritage buildings could be saved. Or a school could be built. Or perhaps 40 houses...

by steven | 3rd Oct 12, 5:25pm 1349238346

That sounds loony, unsolvable....

regards

by Boatman | 3rd Oct 12, 10:49am 1349214547

Re strongNZ$, I would like to issue a challenge to Roger Kerr.

The Aus$ weakened last night against almost all currencies , as expected, on their OCR cut .

If, as you suggest in your article yesterday , the Kiwi Dollar goes down in tandem ( say by the end of the week) back to Aus 78cents to theNZ$ , I will donate $50 to the SPCA , if not , then you donate an equal sum to a charity of your choice .

I am frankly quite concerned about the currency being so overvalued when our economic fundamentals have not changed this year at all .

The politicians seem oblivious, and quite clueless about the effects of a rampant NZ$, they still get their huger salaries , and dont feel any pain.

We are getting Dutch disease by doing nothing to protect our interests, while everyone else from Japan to Brazil are taking steps to protect their economic interests .

Because the effects are delayed and tend to be felt over a longer term , we dont feel the pain right now, and so nothing is done .

by Christov | 3rd Oct 12, 11:19am 1349216350

Stay hopeful Boatman.....enter the Loan Ranger....The RBA invites an IMF stress test on the Banks....oooh dear, we were not expecting that...deary me....crikey, aaah what to do...? downgrade..?

No, No, that might cause Capital flight....hmmm what to do...?

by waymad | 3rd Oct 12, 10:59am 1349215155

Ah yes, Hugh. I work in Riccarton (one pole of the new CBD alongside Addington) and the number of new builds and long tenancies in these areas certainly backs up your comments.

The CBD will be an unattractive combination of:

Gubmint agencies (Justice, IRD, WINZ)
Health precinct (the Hospital and Otago Medical School, extended footprint, but note here CDHB's intention to greatly expand Burwood)
Stadium and central pools (far, far away from most centres of actual residential population, note...)
Convention Centre and associated minimum-wage/low-GDP secondary and tertiary hangers-on like hotels, eateries, bordellos, (or should that be Bordelloes?) and pissoirs

Because they are the only ones with plenty of OPM to actually build dis stuff....

by ngakonui gold | 3rd Oct 12, 11:16am 1349216169

christchurch......enough allready

by Gummy Bear Hero | 3rd Oct 12, 12:10pm 1349219458

I like Christchurch , very much so ..... don't you ?

by StanGoodvibes | 3rd Oct 12, 12:15pm 1349219754

Ngakonui I got a load of abuse on Facebook on the weekend by friends of a friend for daring to suggest that maybe Chch should not be rebuilt. And this is all because I expressed an opinion (that is quite popular outside of Canterbury) that since myself and the other 3.8 million non-Cantabrian NZ-ers are going to be footing the bill of upwards of $30 billion to rebuild Chch, perhaps that money could be better spent not building it again over a known fault line.

Given that a) Chch is now on a known fault line, and b) it wasn't the best place for a city anyway, and c) all the reasons why a setlement was built there 150 years no longer apply in the modern world, I'd like to think that all that money we are having to borrow and can ill afford is going to be spent with economic principles in mind, because a cities purpose is primarily for commerce - all the other stuff is there to keep the workers happy. Instead it's like some knee-jerk reaction to rebuild it how it was (albeit with less dangerous old buildings). Makes no sense to anyone outside Caterbury.

What is particularly galling is that cost of rebuilding Chch could balloon by a further $10,000,000,000 just because of the extra cost of earthquake-proofing buildings and earthquake insurance. Are the 300,000 Chch residents going to pay that money back? No, but they seem quite happy to dump that burden on the rest of NZ just to keep their happy chch memories and carry on their small parochial lives.

Chch is a NZ-wide issue because all NZers are going to be paying for it for a long time. We deserve to have a say in what happens.

by Gummy Bear Hero | 3rd Oct 12, 12:37pm 1349221053

Don't blame the $ 30 billion price tag on Christcurch citizens ...... if the government & the CCC did no more than boot the insurers up the bum , and allow private homeowners and business people to sort out their own rebuild , alot of the hard work would be well underway already ....

...... the crap you're looking at is an abject failure of central planning ..... of " we know best " , from the bureaucrat prats ...

by StanGoodvibes | 3rd Oct 12, 12:51pm 1349221916

GBH Sorry I wasn't blaming Cantabrians for the price tag, but I do feel that they could be a little more understanding of the rest of us wanting to ensure our taxpayer dollars (for a hell of a long time) are going to building the best solution for all New Zealand.

BTW is it a coincidence that your initials are an acronym for Grievous Bodily Harm? ;-)

by Gummy Bear Hero | 3rd Oct 12, 12:58pm 1349222299

........ GBH also stands for Grizzly Bernard Hickey ..... he is on the side of evilness and rotten ; I stan for good vibrations ...

by StanGoodvibes | 3rd Oct 12, 4:50pm 1349236206

Read those thanks Hugh. And I have to agree on the 'experts' - my research on the weekend uncovered a possible 25% chance of another big one in the next year, but then another source had it down to 3%. So, a slight disparity between expert opinions.

My concern if I was still living in Christchurch (or Wellington) is this ...

http://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=10836885

The plate is breaking up causing earthquakes worldwide. Not a good time to be living on or near a big fault. But, at the good old end of the day, you can only go with what you know. And since we now know that Chch is smack on top of a fault line, and we don't know if the two quakes dissipated all the pent up tension of if there is more to come, then relocating to somewhere than has never really had any major siesmic activity beats staying somewhere that has recently and may have again soon.

by Elley | 3rd Oct 12, 1:03pm 1349222627

I get your point but isn't the whole of NZ on a fault line? Or if not that, close to a volcano or another? Fully agree with GBH.

There is a plan to build a convention centre and metro sports facility "The ballpark cost of both facilities is $342 million". I am not sure how they get to $342 million. The new aquatic centre in Rangiora was built for about $3 million I think. Even a larger aquatic centre shouldn't cost anywhere near what it seems it'll cost. Delusions of grandeur anyone?!

by StanGoodvibes | 3rd Oct 12, 1:16pm 1349223363

It's a question of risk Elley. Apparently the earthquake risk in Chch is now on a par with Wellington, which isn't a good thing. It would make more sense to spruce up Dunedin, revamp their port, and subsidise businesses to move there because as far as anyone knows, it's on a seismically benign part of NZ. That's not to say it won't ever have an earthquake, but at the moment it's perceived as low risk, and calculated risk is everything when it comes to confidence and insurance and building costs.

I personally would like to see Dunedin become the super-city of the South Island and some of that 30 billion going towards a bullet train link to Picton (or even through a tunnel to Wellington but that might just be a tad too expensive). Makes much more commercial sense.

by Elley | 3rd Oct 12, 1:26pm 1349223966

I personally like Dunedin - it's home to NZ's only castle after all, not to mention the Royal Albatrosses and penguins - but other people seem to feel they'd rather be sent in exile...

And imagine the implications of trying to move a city, people, businesses and all. Plus Christchurch is a really nice place, close to the sea and the mountains with the Port Hills thrown in for good measure. I reckon the main problem with it is not so much the earthquake risk but the rebuild fiasco...

by StanGoodvibes | 3rd Oct 12, 1:51pm 1349225500

To quote the immortal movie line "if you build it, they will come". A recent survey which I read yesterday showed that as time goes on less and less businesses are wanting to relocate to Chch. if you throw in some subsidies and some cheap land near a newly revamped port in Dunedin you will find the businesses will relocate (and take their staff with them).

As for the people - well I would never live in Wellington because of the earthquake risk, and now that extends to Chch as well. I would have been one of those who joined the exodus away from Chch after the quake. If the chance to start again somewhere with assistance from the govt came along, away from the dangers and memories of the quake, I think a lot of people would take it. And places like Detroit show what can be done to remove disused houses and factories when a huge of the population disappears. As Bob Jones poiints out, what is left at Chch could become a real garden city.

Also without wanting to be mean, there are a lot of us in NZ who don't think Chch is that great. My impressions from the few times I've been there are smoggy, crap beach, and it seems someone was/is getting murdered on a weekly basis. But the surrounding area is nice, so um, make the town much smaller an increase the nice surrounding area bit.

by KH | 3rd Oct 12, 2:08pm 1349226511

The great thing about Dunedin is that it has all the advantages of a small place. Very easy living. At then there is this huge well established and serious University. Makes it a sophisticated town, with international connections and technology. And a great place to do business.

by SK | 3rd Oct 12, 2:23pm 1349227415

I've always prefered Dunedin

by goNZ | 3rd Oct 12, 2:32pm 1349227972

Dunedin ? nah, too many Varsity dropkicks milling around, weather is a disaster,airport is miles out of town,too far from the Rest of the World

by StanGoodvibes | 3rd Oct 12, 3:09pm 1349230199

Well if you had a $30 billion overdraft you could probably revamp the airport, add a fast light rail connection to the CBD, build some student dorms away from the other residential/CBD areas (LOL), and generally give the place a bit of an overhaul to better cope with an influx of 200,000 people.

i.e. actually do some proper town planning. The weather you can't do much about, but these days with transport being what it is everywhere can be close to anywhere (see my high speed rail link idea above)

Dunedin is just an idea - with good road/rail links it might be better commercially to redistribute the population around all the satellite towns around Chch and that area and Chch could be just another one of those - population around 50-60k. With Dunedin being just the major port.

I'd just like to see some of these idea's explored by people who know a lot more about it than I do (which admittedly isn't much).

by Ralph | 3rd Oct 12, 4:31pm 1349235062

Yes away with this Dunedin nonsense. You should have said Queenstown. I'd go there.

by StanGoodvibes | 3rd Oct 12, 4:40pm 1349235655

Well I'm a bit rusty on my South Island geography but isn't Queenstown on a lake? A port there might not be too conducive to joining international trade routes. Never fear, my high speed rail solution includes a station in Queenstown so you could live there and be whisked into Dunedin for work in a matter of minutes...

by Ralph | 3rd Oct 12, 4:42pm 1349235777

I'd be happy with an international airport.

by StanGoodvibes | 3rd Oct 12, 4:55pm 1349236509

OK, the high speed rail goes through what is now the small town of Chch (in my plan) which still has the international airport and a few low-rise hotels/resorts, and carries on to the skifields and such for tourism (both in and out of the region), and then onto Picton.

So you'd only be minutes away from the airport as well. I've though of everything :-)

by StanGoodvibes | 3rd Oct 12, 5:55pm 1349240134

Interesting Hugh. As stated I don't really know enough about it other than to make spurious comments on here. I did see though an image showing the location of the major shocks and aftershocks and it covers quite a huge swath of land heading east to west, with the city centre smack in the middle.

For safety and cheaper insurance you'd want to move out away from that surely?

I'll trust your judgement on the political aspect. It does seem to be a bit of a mess.

by Boatman | 3rd Oct 12, 11:36am 1349217398

Note the divergence , almost 1% fall in milk price and NZ$ up nearly 3 cents against the Aus$ in the past month .

If this trend continues , then we should expect the milk payout forecast to take a hit soon

by Poission | 3rd Oct 12, 11:55am 1349218540

At 5.25 payout Rod Oram suggested that 20% of dairy farmers would be unable to pay capital on their loans,would be unable to increase supplementary feed to increase production.

The increased debt burden for land capture is a symptom of the asymmetry of the tax regime,as there was no benefit to repay capital ( to decrease interest ) they are the makers of their forthcoming misfortune,I wonder how their lobbyists will handle this.

by steven | 3rd Oct 12, 5:20pm 1349238031

yes, but I suspect its a similar story in other sectors not just farming, though farming maybe the worst leveraged. Sadly i think much of the tax system is rorted....it needs to be sorted but no one will....the side effect is a substantial risk of default.

regards

by Gummy Bear Hero | 3rd Oct 12, 12:09pm 1349219374

US house prices rose 0.3 % in August ..... the sixth straight month of house price increases ....

.... house prices were 4.6 % higher in August 2012 than August 2011 ......

Bugger , bugger , bugger ..... that's a good news story isn't it ..... I was wondering why you missed mentioning it , Bernard ...... silly Gummy , silly silly boy !

by SK | 3rd Oct 12, 12:15pm 1349219755

That is major good news - the worlds biggest consumers gaining confidence.

by Gummy Bear Hero | 3rd Oct 12, 12:31pm 1349220700

ssssssshhhhhh ! ..... yes it is good news , very good news ...... but we must keep it to ourselves .....because it upsets the hickeysterical gloomsterisers that the world still hasn't come to a screeching halt ....

by Silversurfer | 3rd Oct 12, 8:22pm 1349248925

That is really great news especially when their money supply hasn't increased at all over the last year. Their economic situation must be getting better.

by John Kelly | 3rd Oct 12, 9:43pm 1349253816

Houston, we have a problem...

You are generating about $65K of product a year for each person. If you want your wages bill to be about 20% of sales, that's about $12K per person. Not a lot.

Please tell me I'm wrong, Houston, I never was much good at sums.

Good night and good luck