How can the NZD get higher?

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Finch

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Topic # 177251 27-Jul-2015 23:30

Hello,

Like others im sure buying overseas is fairly expensive as of now. Maybe expensive is the wrong word, just costs more than what we are used to.

How can the NZD get higher against the US/Other world currencies?

Is there anything we can do?

What causes it to drop/raise?

Cheers.

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Reply # 1352966 27-Jul-2015 23:49

Quick answer:

More nzd buying = price goes higher
More nzd selling = price goes lower

Why buy nzd? Because you want to buy nz things now or in future
Why sell nzd? Because you want to buy things in other currency etc

How can you make it go higher? Buy NZD!

P.s ask George Soros for a loan ; )

Aredwood

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Reply # 1352967 27-Jul-2015 23:55

In short the NZ$ is openly traded on world currency markets. Think of it like the share market - more people buy NZ$ the Dollar goes up (convert overseas currency into NZ$) And of course more people sell NZ$ the dollar goes down (Convert NZ$ into overseas currency)

Also there are people who borrow overseas currency at low interest rates, convert it to NZ$ and then invest it in NZ to earn higher interest rates than what they pay. The higher interest rates are in NZ the more this happens. Which is why the NZ$ often goes up if interest rates are increased.

If you are an exporter, a lower NZ$ is better. As you can either sell your goods for cheaper and still get the same amount of NZ$. Or you get more NZ$ without having to raise your prices.

Simple economic theory is that when the economy does well. The dollar goes up, less money comes into the country, Which acts as a natural brake on the economy. And if the economy goes badly, the dollar drops, exporters get more money, which in turn helps the economy.

gzt

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Reply # 1352968 27-Jul-2015 23:56

Part 2: function of markets in prediction of future price..

mattwnz

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Reply # 1352973 28-Jul-2015 00:40

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The Reserve bank has been trying to weaken the NZ dollar, to help out the farmers, as it means they earn more for their exports, and makes NZ milk etc cheaper to other countries importing it. They have also said that previously the NZ dollar was way overvalued.
The downside is that we will pay more for our iphones, tvs etc, and also people who actually save earn less interest on their savings. I expect to see the NZ dollar only weaken for the next couple of years unless something else happens.

k1wi

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Reply # 1352977 28-Jul-2015 01:07

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The strong US dollar is also playing a major role at the moment, thanks to renewed confidence there. They have strong labour market data coming out month after month (250k+ new starts/month and wage growth finally after 8 years of stagnation), as well as a positive trend around business revenue and company earnings.

With traded commodities largely based in USD, it is in part why oil and dairy prices etc* remain flat/low. That should be good news for NZ manufacturers. It's not as good news for consumers (or employees), as imported finished goods are less likely to change price in USD and thus take more NZD to purchase. As a result, look for inflation to start picking up, because the high dollar was helping to keep it low even while the economy was growing at over 3%. When the NZD weakens, your wage/salary relative to the rest of the world drops.

While it is going to cause some degree of dissatisfaction/pain for consumers, the style of this adjustment is needed to help reorientate the country away from consumption and towards value added exporting.

* Although both have their own softening factors associated with strong supply and weak/flat demand.

itxtme

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Reply # 1352998 28-Jul-2015 07:21

Wait until the end of the week, NZD will go up if the TPP gets signed, if even only slightly

MikeB4

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Reply # 1352999 28-Jul-2015 07:34

There is little logic to currency and other financial markets, it was best summed up by David Lange as "demented reef fish"

Mike
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nathan

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Reply # 1353013 28-Jul-2015 07:51

NZ$ is heading down. 55-60c by Christmas

Any currency from a commodity-exporting country - such as New Zealand - is vulnerable now.

Partly because most commodities are priced in US dollars. When investors are bidding up the value of the greenback, commodity prices and currencies adjust accordingly.

While New Zealand is cutting interest rates, the United States is likely to raise rates later this year, which would cause a further decline in value for the NZD.

MikeB4

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Reply # 1353027 28-Jul-2015 08:04

Its a double edged sword, as our dollar dips the export returns grow which is good for NZ to a point then our domestic market slows, as our dollar rises our imports get "cheaper" our domestic market grows but our exports lose competitiveness and eventually
we lose domestically. It is a fine line we walk between prosperity and hardship.

Mike
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It's our only home, lets clean it up then...

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Geektastic

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Reply # 1353149 28-Jul-2015 09:28

It will do wonders for our tourism industry.

Unfortunately we have a fairly unsubtle economy and the RBNZ uses fairly much a hammer to crack a walnut.

It's great that we do well with dairy but it does cause a lot of issues being dependent on such a small number of industries. Not only has the fact that (through no fault of NZ particularly) dairy world prices fallen caused an impact but the knock on that farmers now demand more money from Fonterra has caused over 500 people to lose their jobs in the first round of Fonterra restructuring - and there are 2 more phases of restructuring still to come.

That latter is really a factor of the business structure in Fonterra - it is akin to PCB makers being able to force Apple to sack staff so that they can be paid more for their PCB's! If Fonterra Brands was separated and floated on the NZX, they would be free to buy from the cheapest supplier that could meet their requirements and the famers would have to sell elsewhere if they could not work with the price being offered.

I don't think we will see the dollar higher unless the OCR climbs high enough to tempt currency owners to invest here. When you run something like a huge pension fund that may have hundreds of millions in cash as part of their investment spread, getting a good interest rate can easily offset any currency dealing costs (especially as such a body would have very favourable terms from their bankers).

Fred99

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Reply # 1353150 28-Jul-2015 09:28

Old saying - "buy on the rumour - sell on the news".
Future expected shifts in the OCR are mainly already reflected in the present exchange rate.
The OCR isn't supposed to be adjusted to control the exchange rate - only to adjust for inflation. But of course that's what happens anyway, as well as actual adjustments, there's "talking down" the rate - to which the markets respond immediately.
The last two quarters, CPI inflation in NZ was 0.1 and 0.3% - lowest since the 1940s.

Lowering the OCR rate is supposed to get us spending - stimulating the economy. Of course we all know where most that extra spending would go - into a non-productive bubble, and worse, using money borrowed offshore.

Geektastic

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Reply # 1353153 28-Jul-2015 09:34

Fred99: Old saying - "buy on the rumour - sell on the news".
Future expected shifts in the OCR are mainly already reflected in the present exchange rate.
The OCR isn't supposed to be adjusted to control the exchange rate - only to adjust for inflation. But of course that's what happens anyway, as well as actual adjustments, there's "talking down" the rate - to which the markets respond immediately.
The last two quarters, CPI inflation in NZ was 0.1 and 0.3% - lowest since the 1940s.

Lowering the OCR rate is supposed to get us spending - stimulating the economy. Of course we all know where most that extra spending would go - into a non-productive bubble, and worse, using money borrowed offshore.

The other thing is that we are competing with (amongst others) places like the USA and EU. Their businesses are borrowing at close to 0% OCR which gives them an advantage. Also, at least in the case of the USA, fuel is so much cheaper than NZ that the cost of manufacturing and shipping is a fraction of ours.

Cutting our fuel costs by 50% would do at least as much for the economy than tinkering with the OCR I suspect.

Fred99

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Reply # 1353163 28-Jul-2015 09:47

Geektastic:
Fred99: Old saying - "buy on the rumour - sell on the news".
Future expected shifts in the OCR are mainly already reflected in the present exchange rate.
The OCR isn't supposed to be adjusted to control the exchange rate - only to adjust for inflation. But of course that's what happens anyway, as well as actual adjustments, there's "talking down" the rate - to which the markets respond immediately.
The last two quarters, CPI inflation in NZ was 0.1 and 0.3% - lowest since the 1940s.

Lowering the OCR rate is supposed to get us spending - stimulating the economy. Of course we all know where most that extra spending would go - into a non-productive bubble, and worse, using money borrowed offshore.

The other thing is that we are competing with (amongst others) places like the USA and EU. Their businesses are borrowing at close to 0% OCR which gives them an advantage. Also, at least in the case of the USA, fuel is so much cheaper than NZ that the cost of manufacturing and shipping is a fraction of ours.

Cutting our fuel costs by 50% would do at least as much for the economy than tinkering with the OCR I suspect.

Oh - it's worse than that. The US and EU also subsidise the crap out of production of the very commodities which are our primary exports, and will not change that in a TPP - or other deal.

I'm of the opinion that if commodities don't recover very soon, then NZ is going to need direct government intervention/stimulus - or we're heading for a possible "depression" creating event (negative inflation and negative GDP growth). I feel that's why government is reluctant to address the housing bubble - as at least while the bubble continues to expand, then it's countering negative sentiment.

wasabi2k

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Reply # 1353179 28-Jul-2015 10:04

Anything you, personally can do? Nope.

Unless you are a gazillionaire or a fund manager and even then - not really.

nathan

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Reply # 1353195 28-Jul-2015 10:34

wasabi2k: Anything you, personally can do? Nope.

Unless you are a gazillionaire or a fund manager and even then - not really.

on that point, the OP should do an internet search for George Soros and the Bank of England and Black Wednesday

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