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US dollar sinks; Ford goes electric; EU's big surplus; Canada house sales rise; Fitch warns of unexpected consequences, key UST 10yr 2.55%; oil and gold up; NZ$1 = 73.1 USc; TWI-5 = 74.4

US dollar sinks; Ford goes electric; EU's big surplus; Canada house sales rise; Fitch warns of unexpected consequences, key UST 10yr 2.55%; oil and gold up; NZ$1 = 73.1 USc; TWI-5 = 74.4

Here's our summary of key events overnight that affect New Zealand, with news Fitch is warning of fallout from the Aussie banking commission that could affect us.

But first, it seems the US dollar is getting the cold shoulder on currency markets. It is lower against most, with the NZD up to 73.1 USc, the highest since before the NZ General Election. In fact, the US dollar is now at a three year low.

In the US, carmaker Ford has become the latest to commit to an electric future. It has said it will invest US$11 bln in the switchover and have 40 electric models in four years.

In Europe, they reported a large trade surplus, but about the level analysts were expecting. It was data that saw the euro rise in value.

In Canada, home sales there in December rose at a faster pace than in November. Volumes were up +4.1%, and prices were up +5.7%.

In China, the thought police are particularly active at present. Any reference by foreign firms to Hong Kong, Macau, Taiwan or Tibet being 'foreign countries' is bringing a swift rebuke and a requirement the companies 'apologise' and delete their references.

They are say they are cracking down in banking industry practices.

Ratings agency Fitch says the Australian Royal Commission into banking there is a fundamental risk to wholesale pricing for the banks, and that could be the case even if the Commission clears the banks, they say. "The reputation of the system is particularly important as the Australian banking sector is heavily reliant on foreign investors for funding. Any loss of trust may lead to higher wholesale funding costs, which in turn could intensify competition for deposits and push up funding costs for the entire system." If they are right, clearly there will be spillover to New Zealand.

The UST 10yr yield is unchanged at 2.55% today because of the US public holiday. However, the equivalent 10yr China sovereign bond has held at its much higher level and is now at 4.02% (-1 bp). The equivalent NZ 10yr sovereign bond is unchanged at 2.89%.

Oil prices are a little higher again today with the WTI benchmark now just under US$65 a barrel, while the Brent benchmark is now over US$70.

Gold however is up strongly, up +US$8 to US$1,341/oz.

The Kiwi dollar is up more than ½c to 73.1 USc on a weakening greenback. On the cross rates it is at 91.7 AUc, and against the euro we are softer at 58.6 euro cents. That puts the TWI-5 at 74.4.

Bitcoin has risen over the past 24 hours by +US$830, to US$14,120, a +6.3% gain. And in Korea, they have found something that will actually stir millennials - more than 200,000 people have signed a petition opposing the crackdown on cryptocurrencies being planned by their central bank. Going the other way, China is among many clamping down tighter on them.

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

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36 Comments

Everything in established economic theory tells us that the Yen, which was 300 to the dollar once upon a time, should be weak as. Yet here it is at 110. If the US$ Cold Shoulder gets going, yen at 60 and NZ$ at $1 ?

But of more immediate concern:

UK Construction giant Carillion, a major supplier to the government, has fallen into liquidation
Collapse puts thousands of jobs, pensions and contracts at risk and could leave banks nursing £2bn hit
Up to 30,000 businesses risk losing out on £1bn in unpaid costs
MPs launch inquiry into public sector outsourcing

Carrillion is a larger version of our Fletchers, and how are they doing?!

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Strikes me that governments are dangerous customers and you are a fool to be overly reliant on their business. As the projects get bigger they get exponentially more dangerous.

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Agreed Roger Witherspoon, but we also have to ask... what on earth have Carillion been doing paying record dividends, whilst accruing record unsustainable debt and paying wildly insufficient funds into their employees pensions? Blows my mind how messed up the corporate structure is, when shareholders merrily profit at every moment while a company is going under and employees are about to get utterly stuffed on their pensions. It's almost as if they have banked on the government bailing them out.

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Cheap credit has created some seriously broken business models. Borrowing for share buybacks or borrowing to pay dividends is getting mighty close to Enron style.

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What corporate executives being arrogant? Who would have thought.

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With government there is always that risk that ideology will trump common sense and commercial reality.

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Banks face profit risks from household debt and global economic recovery: Fitch

Ruh-oh

http://www.abc.net.au/news/2018-01-15/fitch-gives-australian-banks-a-ne…

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Gotta larf:
"Any loss of trust may lead to higher wholesale funding costs, which in turn could intensify competition for deposits and push up funding costs for the entire system."

Oh dear, the Aussie bank rort is exposed.... but will anyone notice?

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yup, the RB will come to their rescue as usual

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The tipping point is in plain sight and the RB will remain powerless.

Australia was “kissing up” to the US and risked “poisoning” its relations with China, which could “adopt strong countermeasures which will seriously impact Australian economic development.” Australia hasn’t taken a position on SCS spats, but has said it favors “freedom of navigation” in the area, echoing the US’ position. Read more

Winston's choices are more relevant. Read more , more and more

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So if (or rather when) the screws go on Aus, will China leave us to 'suffer'as well, or fill in the void, prop us up with trade and thus give a lesson on why one should change alliances?

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A commitment similar to that recently undertaken by Germany may consolidate our export position with China.

Bundesbank Says It'll Add China's Yuan to Currency Reserves Read more.

I understand NZ's current Chinese currency reserve position is minuscule. Possibly due to real or otherwise liquidity concerns.

Looking ahead, I firmly believe, if we maintain trading links with China, WMP export sales will be settled with freshly fabricated Renminbi credit.

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That's terrible Roger !

Just imagine depositors getting something like 3 % real pre tax - enough to bring down the Aussie banking system !

Savers should be shafted for a few more years to keep everyone in their place.

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I know, it gets worse, imagine a level playing field where wealth creating productive industry could compete fairly with wealth transferring property and banking. I mean, where would it end?

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Outrageous talk. Harrumph.

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No prizes for guessing who accounts for the bulk of the "EU" trade surplus.

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Luxembourg of course as supreme leader Junker did so many sweetheart tax deals with multinationals.

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This coalition Government really dos not think things through ......... They award students and extra $50 a week as a student allowance , and what happens ?

Student accommodation has increased everywhere .

Guess how much ?

Anything for $35 to $50 per week .

The cant say this was unexpected because its exactly what happens in the real world . Any landlord or anyone running a student accommodation set-up would this .

Its about as stupid as the rent supplement, if landlords know there is funding available they will price the accommodation accordingly

Its well known that when there is a Government subsidy , the suppliers of the subsidized product or service will price the product or service to clip the the subsidy for themselves , be it home insulation , kindergarten costs , physiotherapy, accommodation supplements, student handouts or whatever.

This election gimmick or bribe has now bitten them on the backside . Its literally money funneled directly into the pockets of suppliers of student rental accommodation .

In most cases there will not even be enough left for a drink at the Uni pub .

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...or, they were well aware of the consequences of their actions, and it's a case of the left hand supporting the property market with allowances, whilst the right-hand slaps it on the more-homes-needed wrist very publicly. Two Manifesto birds felled with one stone....

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Agree, it's distortionary when there's not enough supply coming on. This is exactly what many of us have been complaining about with the Accommodation Supplement and Working for Families, which are essentially just subsidies to landlords and companies. Bit of a Hobson's choice in the last election, with both major parties promising to increase subsidies.

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Got to get as many interest groups as possible to be dependent on the munificient government teat. In this the interests of the political tribes and the bureaucratic tribes are aligned.

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A Gubmint big enough to give you everything you want, is big enough to take away everything you have....

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Waymad - spot on thats Taxinda's plan.

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You two are so silly. I remember when the old waymad was logical and abstained from emotive posts.
Those were the good 'ol days.

Now you (both) act as irrationally as a butthurt liberal in a West Coast sanctuary city.

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7 New taxes proposed by the COL, Capital Gains Tax to follow, 100,000 houses not built and a Billion trees not planted this hotchpot of airbrains in the Beehive stand as much chance of successfully improving the average NZ er life as Helen C does of becoming the next Queen of England

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..so you think tress ain't the way to do it? So whats your plan to soak up carbon?

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Wait, which govt. are you talking about?
Sorry, it's just you could be mistaken for attributing that to either...

Taxes:
https://thestandard.org.nz/nationals-18-new-taxes/

Construction of housing:
https://www.stuff.co.nz/national/politics/99353561/homes-still-not-bein…

Environmental progress:
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11846084

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*Bit of a Hobson's choice in the last election, with both major parties promising to increase subsidies.*

So true, which is one of the reasons I didn't vote for either. I threw a protest vote to Gareth Morgans lot, at least they were willing to give the system an overhaul rather than just a tinker around the edges.

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Boatman,

Sadly,you're right. It was naive of the government to imagine that (most) landlords would not use this as an opportunity to demonstrate yet again their greed. It's not as though they were were charging below market rent previously,but who would pass up the chance to gouge more from a bunch of mostly hard up students.
Indeed,I can well imagine landlords over a well earned drink or two,congratulating themselves for their acumen,having had their social conscience surgically removed.

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one less reason for scumlords sorry landlords to complain about when interest rates start to rise

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..one hand giveth, the other taketh away. The ring fencing of losses (if and when they deliver on that policy) and 2 up to 5 yrs cap gains tax the being the taketh. So I might forgive them if and when.........

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Boatman - Do I detect just a faint hint that you think the current coalition of losers combined brain power would make a mongoloid amoeba appear a genius?

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Lol, coalition of losers. Hasn't Bill lost two elections now? Doubt they will let him have a crack at a third.. At least he is a winner in your eyes.

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Bill wasn't a loser, the man some call political pus chose to go with Labour, who is led by someone who lost two electorate votes to National candidates, one in 2011 and the other in 2014. She could only get over the line when given a safe seat.

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Yet that "political puss" has been chosen for a political team that may save us from nuclear war. Obviously those not narrow minded by afiliation to a party that has satisfied their personal greed, has seen his qualities as a very astute politition.

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If I were a landlord to students, I be happy to see them keep their extra $50.
Most of them are responsible, understanding having a good credit history is important.

The extra money would go on heating and cleaning kit, a decent second hand couch, things that would directly assist a better more careful Tennant. Young people are not picking up booze like they used to. Have a little faith. That extra 50 will be of benefit to the majority of students.

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