US inflation low but real earnings rise; Wall Street near record; gold falls, oil rises; NZD gains direct convertibility with the Yuan; NZ$1 = US$0.863 TWI = 80.4

US inflation low but real earnings rise; Wall Street near record; gold falls, oil rises; NZD gains direct convertibility with the Yuan; NZ$1 = US$0.863 TWI = 80.4

Here's my summary of the key news overnight in 90 seconds at 9 am, including news its all about the exchange rate this morning.

The New Zealand dollar is to be the sixth currency to have direct convertibility to the Chinese yuan, after the US dollar, Japanese yen, Australian dollar, Russian ruble and Malaysian ringgit.

ANZ, HSBC and Westpac all announced that they were approved by the Chinese central bank to be market makers for the currency pair.

As this was being announced in Beijing last night, the Kiwi dollar took off higher and is currently at an all-time, post float TWI high of 80.4.

We are at 86.3 USc the highest since April 2013 and as you read this it may have gone even higher, threatening the August 2011 all-time post float levels. We have also surged higher against the euro and the English pound, as well as the Chinese yuan where we are the highest since April 2013 as well.

All this is despite another big fall in the Fonterra dairy auction, down another 5.2% on top of the previous 4% decline, even more - 7.9% - in NZ dollars. Over the past two auctions, proces have fallen more than 12% in NZ dollars. The payout levels may be under question.

As this was happening, a large Chinese real estate developer with more than half a billion dollars in debt has collapsed and its largest shareholder detained in what could be a further sign of financial stress in the world's second largest economy. Chinese house price inflation is cooling.

Meanwhile, consumer inflation in the US was little changed in February, coming in at 1.1% over the past year. Real average hourly earnings in the US (wage rises less inflation) also rose 1.1% over the past year. The US Fed meets on Friday (our time) and they will be little concerned about inflation; jobs will be their focus and they will almost certainly reduce the bond buying program by another US$10 bln per month.

American housing starts and building permits issued came in at or above expected levels.

Wall Street rose for a second straight day as it became clear Russia will take Crimea but apparently has no intention of taking any more of the Ukraine. Those eased tensions encouraged more risk appetite and is another reason the NZ dollar rose.

Gold fell to US$1,350/oz although it has risen slightly since then. US oil is back up to almost US$100/barrel, although there is little change in the Brent benchmark today.

In Germany, their highest court has approved German participation in the EU bailout fund - provided German lawmakers approve. That's the second decision this key court has ruled against local sceptics.

Later this morning we get the December current account data and it is expected to be sharply better than for the September quarter, down to 3.3% of GDP. Tomorrow we get Q4 GDP.

If you want to catch up with all the changes yesterday, we have an update here.

The easiest place to stay up with today's event risk is by following our Economic Calendar here »

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8 Comments

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Highlight new comments in the last hr(s).

NZ$ rockets upwards and we have Mr Wheeler and the increased OCR to thank for this.
There is no other reason for the Kiwi$ strength , and I have persistently said this would happen if  the OCR went up , to the detriment of  the manufacturing export sector . 
We have yet to see tangible evidence of the inflationary pressure he indicates exist .
If anything we are seeing deflationary pressures in imported manufactured goods prices , everything from TV's and computers  to the the entire range of Nissans at 2008 adjsuted prices and financed at  1% .
Wheeler says there is inflation in administered prices ( Rates , Insurance , etc ) and building materials ( A CARTEL) but these are relatively small in weighting in the CPI .
With core  inflation at 1,9% there is no justification for any more tightening of monetary policy whatsoever .

... milk powder from New Zealand was being mixed with nutrients to make baby formula packaged in tins with an “Australian made” certification. Dajian Li had suddenly become unavailable for interviews.....
read further....

China’s demand for milk powder becomes a white gold rush on Aussie dairy farms
http://www.theaustralian.com.au/news/features/chinas-demand-for-milk-pow...
One local councillor almost wept while talking about the dairy’s reopening, for even here in Gippsland - the richest dairy region in Australia - the previous decade has been a hard grind for farmers. Suddenly, China is being touted as their saviour and milk is being touted as “white gold” in the business pages. Sixty kilometres up the road from Toora, the Burra Foods factory has spent $70 million installing a new milk powder processing operation, which last week produced its first consignment of infant formula for Chinese babies. In nearby Poowong, United Dairy Power has been bought by Hong Kong businessman William Hui for $70 million. In Tasmania, a new $75 million plant on the site of an abandoned timber mill is processing 150 million litres of milk a year into powder for export. In NSW, the dairy industry is talking up plans for $200 million of Chinese investment.
Everyone is chasing the same dream: cashing in on the rocketing demand for milk and infant powder among the middle-class of Asia, particularly China, where 16 million babies are born annually and parents are paying up to $70 for a tin of “clean and green” imported baby formula that costs $20 in Australia.
It’s a stampede that could hit some potholes, if Toora’s experience is a guide. For while Dajian Li’s new company, Viplus Dairy, has started shipping pallet-loads of formula to China from the town, the operation has some curious aspects. The website paints a seductive picture of Toora’s entire population happily toiling in the dairy while fat Gippsland cows laze around waiting to be milked, but on a recent March afternoon there were just a handful of workers inside the largely abandoned factory and not a cow in sight. Instead, milk powder from New Zealand was being mixed with nutrients to make baby formula packaged in tins with an “Australian made” certification. Dajian Li had suddenly become unavailable for interviews and it was difficult to determine who was running the company. “Mr Li is behind the scenes in many ways,” explained the administration manager, Marion Hannon, in her office in the draughty and half-finished administration building. Viplus is “wholly and solely” an Australian company, she emphasised as she offered a guided tour of the factory, although who finances the operation is unclear. “I can’t really comment on that,” she said. “But there’s a lot of money being spent on the project.”
......
 

from the where are they now file:
http://www.naturaldairy.hk/index.php?route=other/othercat&t=1&othercat_id=8
pull down the INTERIM RESULTS FOR SIX MONTHS......
 

If/when EU impose sanctions on Russia and more people get shot in Ukraine/Crimea, will we see the Euro weaken against the NZD? It will be holiday time soon.
SK

SK.... what a way to live your life....waiting for innocent people to get killed in a far way land, so you can enjoy a cheaper European holiday ...... says it all really ...

This site is supposed to help people make financial decisions.

Are  you a sociopath?  God knows I deal with enough people in the business world that sound just like you who I swear are sociopaths or just shameless hard to tell sometimes.

The excitable AEP from t'Torygraph adds context to the China Property Default unfolding as we speak
- er - type.
 
(Dare not press the Link button...so switch to text and hand edit the sucker...)