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New Zealand Exchange Rate

 

New Zealand Exchange Rate

New Zealand Exchange Rate

According to Bloomberg’s November 11, 2009 issue, a great increase in the value of the New Zealand dollar is not likely to be sustainable and is likely to cause a retardation of the country’s improvement of its present account deficit.

This statement was made by Governor Allan Bollard of the New Zealand Reserve Bank.

He further states that major factors that are causing this decrease are the U.S. dollar’s weakening and the increasing appetite for risk among investors.

But it cannot be denied that part of the increase was caused by the domestic economy’s improvement.

 

The currency of New Zealand has gone up twenty four percent against the U.S. dollar in the past 6 months. It was, in fact, the best performing currency according to Bloomberg. Curbed exports and spending by tourists (which accounts for approximately 40 percent of the country’s economy) by stronger exchange rate has slowed the recovery of the country from the worst recession to have hit the country in 3 decades.

According to the October 29, 2009 report of the Government, in the 3rd quarter, exports fell by fourteen percent from the previous year as the NZ dollar gains offset increasing prices for aluminum and milk powder.
 

Shareholders of Auckland were told by Chairman Keith Smith that tourism’s curve of recovery is still uncertain, that New Zealand needs to battle a currency which is increasing.


New Zealand’s account deficit currently was over five percent of the year-end’s gross domestic product as compared with the more than eight percent revision.


According to Bollard, the economy of New Zealand is still indebted heavily and its overall condition is still weak.

 

In the 2nd quarter, there was 0.1 percent increase in gross domestic product which effectively ended the worst recession that has ever experienced in 30 years which began in New Zealand in the 1st quarter of 2008.

 

Although there was a continuous rise in real estate prices, the unemployment rate surged in the 3rd quarter to a 9-year high and credit card spending by consumers fell in October for the first time in 4 months.
 

Bollard says that banks are continuously increasing provisions for bad loans and have implied that are unlikely to peak prior to the middle of 2010.

 

Relative to values of property, some banks have started to give out bigger loans and there has been a return to past home lending practices that are riskier and should really be avoided.

On a historical basis, prices of houses are relatively high and more gains will most probably slow down as the phase of recovery passes and lending rates begin to be increased by banks.

NZ Exchange Rate
 

There is a need to make sure that there is no reappearance of cycles of debt-fuelled housing since this would bring even more pressure on the rate of exchange and would erode competition, according to Bollard.

He further states that while the economy of the world is improving, the sharp rise of the market’s global equity starting March may have gotten ahead of the improvement which is underlying.
 

 

 

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