By Roger J Kerr
Finance Minister Bill English was interviewed by Bloomberg last week and he sees the high NZD value against the USD being an “impediment” to growth this year.
However he does not see any reason why the NZD would go higher still.
He is very conscious that the Government does not do anything to put upward pressure on the currency.
RBNZ Governor Bollard has already stated that a tighter fiscal policy from the Government will allow monetary policy to be looser for longer and thus in turn weaken the NZD.
However as we all know, it is not the NZD side of the exchange rate pair that has caused the NZD/USD rate to be at 0.7700, it is the weaker USD on global FX markets.
Mr English is probably walking a higher tight-rope than the RBNZ Governor these days. He has the tricky balancing act of being fiscally prudent, however getting National re-elected back into Government in November, therefore cannot slash and burn Government spending.
Additionally, he has to keep the chaps happy at Moody’s and S & P.
He also cannot pee-off foreign investors into our Government bonds (who are funding his fiscal deficit) by doing something that causes the NZD currency value to slide dramatically - that is, the investors lose money in NZ.
Bill English indicated "the biggest dangers for New Zealand include a slowdown in China, house-price bubble bursting in Australia or a spreading in the European sovereign-debt crisis".
My take on those risks is that all three would cause the NZD to depreciate, exporters would cheer and GDP growth would be higher in New Zealand this year than otherwise would be the case.
For the meantime we cannot have it all our way. The record high and still rising NZ export commodity prices in many ways justify and support the higher NZD value.
However it would be great for the economy if the USD strengthened internationally and our agriculture export commodity prices stayed up.
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* Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com
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3 Comments
GDP and economic growth. As soon as you hear these terms and others it's a flashing red light saying...
Never ending growth on a finite sphere ...rightttt...
Any one still promoting this crap is the village idiot
Its about the under pinning resources Roger!
Where are they?
All eyes on the Current Account
NZD could very very quickly slide down the elevator shaft. Just imagine servicing that $200m/week when it is in a high USD or Yen environment!
Bet JK is moving his moola offshore. Bolly is playing a dangerous game - keeping rates up and keeping the dollar up while Billy spends all he can get.
This is not sustainable in any sense.
Simple question.
How does China do so well?
It exports and that happens because it has a lower value of its currency than what it should be.
NZ should be doing the same.
Unfortunately Bill English would be "the rabbit in the headlights" as imports start to cost more (as well as exportable food we consume here) and inflation rises.
Now would that be an electable policy????
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