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Trading in the Kiwi dollar at the moment is a bit under the weather. More bad news with our gigantic Current Account deficit (which I and everyone else have warned of but only Winston Peters really seems to care about) today. NZ inflation will blow out to 4% next year! Hello! If the Fed hikes interest rates to counter US inflation soon (as has been talked about) AND Labour does a deal with the Maori Party and the Greens will this trigger "a rapid and substantial market-led exchange rate depreciation," that Treasury in it's pre-election fiscal update has warned us about?
It is all explained in this post of 6 Sept.: "Just passed the US$0.71c barrier in trading - buy US$ now with your Kiwi - it won't be much more affordable than this."
UPDATE@6:30pm 19 Sept.
NZD fell through 70c late this afternoon.
UPDATE@10:30pm 19 Sept.
Canary in the Mine reports:
Statistics New Zealand will release the latest current account figures, also known as the balance of payments, on Wednesday...Ten economists polled by Dow Jones forecast the median quarterly deficit for June would swell to $2.6 billion, or 7.5 per cent of GDP for the June quarter. The last time the current account deficit was higher as a proportion of GDP was in March 1986, when it was at 8.9 per cent. Any level above 5 per cent of GDP is usually an alarm signal to international investors. Reserve Bank Governor Alan Bollard says this is not sustainable.
UPDATE@5:30pm 20 Sept.
Independent reporting:
The euro also dropped ahead of expectations the US Federal Reserve's will raise its benchmark interest rate tomorrow, widening a gap with the European Central Bank.
Therefore:
Tomorrow, Wednesday 21 September we have a possible interest rate hike of the Fed and a possible current account blow-out being reported by Stats NZ. Add to that political instability and the alignment is beginning. I hope you have put your NZD into USD by now. We're presently at 70.2c
posted by Bomber @ 12:23 pm
6 comments
6 Comments:
All those USD/Sterling/Euro dollar assets in the NZ Super Fund starting to look very prudent right about now.
Cathy:
Go girl! I notice the Kiwi is down below 70c now. Smart money to cash out now (although my original recommendation was at 71c - which we hit on the 6th or 7th just after I made my call). We are so over-exposed with "Eurobonds" in NZD that one might expect those holders (Belgian dentists?) to act to stabilise their investment somehow before it matures down the line... but our structural problems seem overwhelming.
PS: I love MMP. I love the uncertainty. I love that the bastards have to work for it rather than have it given to them on a plate. I love how almost every vote cast counts. Act exists (only just) because of MMP.
RR:
Yeah, that wiley Dr Cullen. As I've said before I can't work out whether he's a fool or a genius - stashing it all overseas like that. He gets an appreciating asset (because of the projected currency decline) in NZD terms and also gets a triple A credit rating to boot. I guess the future retirees should be grateful at this point.
I'd tell him to chill, Cathy. Or at least be prepared to make a play once the reef fish have fled. Concretely, I can't see much difference between the coming Labour-based coalition and the last one, except that this one's going to find it harder to get its policies through. If Mr Moneybags was content with the last three years of Cullen he should be looking forward to the next three.
Maybe you could send him a copy of the Cato Institute's report while you're at it.
Have you told them the Maori separatists are insisting on preserving their common law property rights from nationalisation? ;-)
Personally I would pleased if the dollar did drop. The NZX is overpriced, exporters could do with it, and most of my assets are offshore.
By "waiting for the reef fish to come back and make a play", I meant that the smart punter would be out now and back in when NZ assets have dropped below fair value, not that I need to point that out to you I know. I realise now that was ambiguously put.
Cathy,
You might want mention Treasury's PREFU forex warning in your report and those more recent inflation projections too. Or is it a political risk report? As long as it doesn't have a picture of a naked Keith Locke and a caption: "potential cabinet minister". I don't think the brokers would take to kindly to that.
AL: Good call on the super: see SageNZ for a good discussion of this re: WInston's coalition carrot.
There's that individual accounts arguement again. Have we seen as much inter-party compromise as we're ever going to see with this super issue? Is it merely that Winston come up with this one, therefore it somehow must be wrong?
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