90 seconds at 9 am: NZ$ spikes to just below post-float high on TWI basis after euro slides and markets interpret RBNZ MPS as hawkish and future OCR cuts less likely

Here's my summary of the key news overnight in 90 seconds at 9 am, including news the New Zealand dollar has spiked over the last day to one year high of 74.4 on a Trade Weighted Index (TWI) basis. It is now just 1% below its post-float high of 75.19.

It has risen sharply against both the US dollar and euro since the Reserve Bank's December Quarter Monetary Policy statement released at 9 am yesterday. The MPS and Reserve Bank Governor Graeme Wheeler's comments were interpreted as hawkish, meaning market expectations of future interest rate cuts were reduced.

Higher interest rates in New Zealand relative to previous expectations and interest rates in other countries make the New Zealand dollar relatively more attractive.

The New Zealand dollar rose to as high as 83.5 USc overnight and was 83.1 USc in morning trade, having risen more than a cent in the last day. Wheeler's only fleeting comments about the effects of the high New Zealand dollar on the export sector and his repeated statements about not intervening helped bolster the currency.

The New Zealand dollar also spiked against the euro overnight from just under 63 euro cents to as high as 64.3 euro cents.

This followed comments from the European Central Bank overnight, which held its official rate at 0.75% and warned of a further slowing of economic growth and inflationary pressures in the Euro-zone region, opening up the prospect of further interest rate cuts on the continent. This, again, made the New Zealand dollar relatively more attractive.

US stocks were slightly higher overnight with most of the focus on the fiscal cliff stalemate and the comments from the ECB. See more here from Bloomberg on the bearish outlook for Europe.

Video due shortly. We've had a few technical issues this morning.

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well done Mr. Wheeler. Would have been better to drop OCR, and introduce macro prudential tool like core funding ratio. This would've of helped business with lower interest cost, dropped the NZ dollar helping exports and cooled the supply of hot money fuelling the housing market...sigh...we have to keep waiting for some common sense to arrive.

Don't you know we are not allowed to deviate from the Economics for dummies textbook. The lack of thought into other possibilities outside the 'norm' is worrying. We are a small and agile economy - act like it instead of trying to be something we are not, such as USA mark 2.

Spot on.

nup, I don't have a mortgage Ivan

rp..i vote you in as RB governor..the current n previous are dummies.

Handpicked dummies auckguy...! not just any ol dummy, gotta know how to move your lips and say nothing, wave your hands and not show the strings,feign concern, look overworked but in charge(actually Bolly never looked in charge, so I think the model has been tweaked)
So ...no ,not just any Dummy. Oh, and get back in the box with no kiss goodnight  is a given to be Governor.

Net household wealth in the USA has climbed to $US 64.7 trillion , just short of it's all time peak of $ 67.3 trillion in the third quarter of 2007 ...
..... net household debt stood at $US 12.7 trillion ....
It seems that our American friends are prudent , with just modest bororwings , and a healthly personal balance sheet ..... that should keep the gloomsterising fear mongerers around here quiet ....(.for about 10 seconds ! ) ......

Hello GBH...wonderful to see you around...yes , made my day..!
i shall go put on my happy glasses again and raise some Christmas cheer.
Stay well.

Yes held by 31 million households. Similar profile households in Europe - 6 million, China 3 million... interesting!

Cheers Gummy. Great to see you back.
Curious. How do you think that distribution of wealth and income might affect economic growth prospects. Could it be most of that increase in household wealth has gone to the top 0.1%, who are now hoarding that money rather than reinvesting it?
And could it be most of that household debt is lumped on the middle to lower income groups in America, who are the ones who power the economy through consumption?

You've nailed it BH.

That's a surprisingly good article! Pity it steps back from making any recommendations, but it highlights significant problems very well. 

Doesn't sound like it was a Sabbatical.
You can increase your collective 'wealth' by all agreeing your existing housing stock is to be valued 20% higher.
It's horseshit, of course.
Sundays at rNZ had a good interview with George Mobus - he's a Prof who teaches what we try and explain here - the interrelationship of systems.
His blog is worth a vist too:

Hello Bernard : in the general hubbub , someone challenged me to only blog here when I found something that I could agree with you on .....
........ after 5 weeks I've given that idea away as a lost cause ...
Economists' consensus is that if consumers in the USA feel wealthier , they will spend more , and that will lead to economic growth , and a very Merry Christmas down at Walmart ....
( if we wanna attribute blame for the huge debts overhanging the lower to middleclass , look no further than the US government's own Community Re-investment Act [1977] which forced banks to lower standards , and to give home mortgages to folks who were not credit worthy enough ..... any lessons there for David Shearer and his ill-judged 100 000 affordable homes programme in NZ ? )

A very good point for those wishing to blame banks for the state of things.  It has been government policy in many western countries to make housing affordable for all.
The method of delivering this largesse was cheap finance for the poor and who could be against the poor?

you make a good point. But regardless of fault, it is the banks who have profited from the policies. One can argue for a large scale transfer of wealth/income from banks to families without hating or blaming the banks. 

Reading between the lines of RBNZ inuendo is at best an exercise in futility , as to indicate you have noted is the policy , not to imply or say or hint at change has become more the focus than the numbers themselves.
Well fear, fear of what..?
 Aside from being complicit in the wellbeing of Foreign Bank mortgage lenders, toadys to the Finance Ministers thoughts on the direction of the economy.....what..?
 The fixation with inflation or more correctly the potential for,at the expense of the export community, at the expense of the balance of trade, at the expense of savers, accessibility to the market for first home buyers, .................has to be a trade off for what can only be percieved is the lesser of two evils, should it occur.
As the most common thread in all inflationary ingredients is gasoline....it stands to reason that is the source of the fear.
So why not come out and just say it, we are not children, or is it because, it is already known  by the need to knows we are just buffering for as long as we possibly can,gulping down humongous chunks of foreign capital like a bum at a Bar Mitzvah, hoping praying we can get the economy to withstand an oil shock....(not that we'll do that selling houses to each other.).....well ,Shylock is going to call the note at the out door.
 Despite the Governors projections for the currency in the longer haul , there is a little black spot on the horizon and might, maybe,could,escape is not a plan but a hope.
The RBA are seeing the chickens coming home , trying desperatley to shoo them away.

In order to establish why there is no attempt to keep the dollar lower we need to look at who are the winners from a high dollar and what influence they have over the level of the dollar.
Consumers win with cheaper imports, but they have no influence much.
Importers they win but their influence is minimal.
Large borrowers of overseas funds they are big winners I wonder who they would be and how much influence they have.

Absolutely right Zeebeck but those who would be King have done so by usurping and taking full advantage of the vulnerability the economic guardians appear to live in fear of.
They are Kings for now, by default....no argument, to be, at some point boiled in ...oil.

Also, Zeebeck, the trucking cos who get all they want, including supression of diesel costs via the high dollar.  Now wonder how the influential liquor cos benefit.

Wheeler made the right decision . Lets face it , all Central Banks are reactive , basing decisions and responses  on whats actually occurred , and on the  trends arising from those occurences .
We cannot therefore predict what the RBNZ will do next or how it is going to react with certainty , nor can we say catagorically  that  Wheeler is a Hawk or a Dove... he will simply respond to whats happened or happening and make those responses the least disruptive as is possible.
For now the waters are calm , so his decsion is a good one  

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