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Um, what just happened in New Zealand?

  • #21
  • Jun 11, 2007 1:16pm Jun 11, 2007 1:16pm
Quoting StockKJay
I have never seen intervention before, so this is all quite new to me. I am not buying into this being the end of the NZD run. As far as major currencies go, it is the highest paying carry out there. Until I see a sustained drop on currencies like NZD, I won't be anxious to short. Honestly, I am anticipating a 93.00 NZD/JPY again before the next couple weeks are up.
I agree. Too early to tell. Does anyone know how much reserves the bank has? I don't think they'll keep unloading it. As much as I agree that the intervention is serious, but i think money will continue to flow in that direction for a bit longer.
Alex Kazmarck
http://spoteuro.blogspot.com
  • #22
  • Jun 11, 2007 1:42pm Jun 11, 2007 1:42pm
RBNZ screwed me over!
  • #23
  • Jun 11, 2007 1:56pm Jun 11, 2007 1:56pm
Quoting ForexTraderMan
RBNZ screwed me over!

Hope you had a tight stop
  • #24
  • Jun 11, 2007 1:56pm Jun 11, 2007 1:56pm
Your not the only one, I am sure their were quite a few longs looking to grab a few more pips when low and behold 100pips evaporated in about 1 hour.
  • #25
  • Jun 11, 2007 2:24pm Jun 11, 2007 2:24pm
that's right. but if price continues to climb, it'll happen again and probably next time RBNZ won't be alone.

Quoting alexkazmarck
I agree. Too early to tell. Does anyone know how much reserves the bank has? I don't think they'll keep unloading it. As much as I agree that the intervention is serious, but i think money will continue to flow in that direction for a bit longer.
Alex Kazmarck
http://spoteuro.blogspot.com
Nihil Sine Deo.
  • #26
  • Jun 11, 2007 2:28pm Jun 11, 2007 2:28pm
Quoting Scrat
that's right. but if price continues to climb, it'll happen again and probably next time RBNZ won't be alone.
So how much money do you think they have to prove themselves right? Thats interesting you noted that they won't be alone. Does anyone know of cases where other central banks jumped in to defend another national currency from appreciating? Its not in their favor so I wouldn't assume they have. Just curious.
  • #27
  • Jun 11, 2007 2:38pm Jun 11, 2007 2:38pm
It is human nature to do things which they are told not to do. It is very evident from the RBNZ action that they don't want NZD above .7600. Even they are uncomfortable with .7550

I still see some people want to long NZD/USD, when the writing is ver clear on the wall. They have their own explanations, but i dont think it is worth to put a trade for a maximum 100 or so pips worth of gain. It's like fighting a central bank. Somebody asked a question for how long can RBNZ keep on selling NZD, the answer is they dont have to. They have indicated in very clear terms, current NZD exchange rate is not acceptable. This was just a gentle reminder. If speculators keep on purchasing NZD, they have an option to devalue the currency, which will be a disaster for carry traders or for that matter Japenese investors.
  • #28
  • Jun 11, 2007 2:45pm Jun 11, 2007 2:45pm
Quoting Scrat
that's right. but if price continues to climb, it'll happen again and probably next time RBNZ won't be alone.
That isn't for certain. Canada's bank chief, Euro bank members, US Fed personal amongst others have all said that intervention is not the way to go. I do believe that the RBNZ took a stab at trying to set a trend for other CBs to follow and it is unlikely it will catch on. Although ... if it does ... get ready for the fireworks!
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #29
  • Jun 11, 2007 3:20pm Jun 11, 2007 3:20pm
i wasn't necessarily talking about other central banks.
as for how much money RBNZ is willing to spend into this... it's not about that. size does matter in forex but in this case they wanted to send a message, and i believe it was clear enough. remember, we're not talking about a russian guy who jumped in with a couple of hundred millions for a quick speculation... it was RBNZ.
do you think long term investors will just keep going on a shopping spree to buy NZD after what happened now? i doubt it. if i were one, i'd be very careful.
we might not see the effect immediately as this gesture was a symbolic one. but we're not far from a fall.

Quoting alexkazmarck
So how much money do you think they have to prove themselves right? Thats interesting you noted that they won't be alone. Does anyone know of cases where other central banks jumped in to defend another national currency from appreciating? Its not in their favor so I wouldn't assume they have. Just curious.
Nihil Sine Deo.
  • #30
  • Jun 11, 2007 3:29pm Jun 11, 2007 3:29pm
Quoting Scrat
i wasn't necessarily talking about other central banks.
as for how much money RBNZ is willing to spend into this... it's not about that. size does matter in forex but in this case they wanted to send a message, and i believe it was clear enough. remember, we're not talking about a russian guy who jumped in with a couple of hundred millions for a quick speculation... it was RBNZ.
do you think long term investors will just keep going on a shopping spree to buy NZD after what happened now? i doubt it. if i were one, i'd be very careful.
we might not see the effect immediately as this gesture was a symbolic one. but we're not far from a fall.
Dont' get me wrong Scrat, I'm with you on the correction. I just dont think it will happen right away. My point is that even central banks can be wrong. The signal is very clear - i think its been clear for the past several weeks as talks of unwinding carry trades has taken center stage. I just think money will follow return and for the time being... until Japan raises rates or makes comments regarding higher rates, money will flow out of Japan and into higher yields. I'm just wondering if there are other better choices than the NZD. With risk of a fallout higher than before, USD has been getting a boost from higher yields. Will they continue to go up? Its all about the flow of funds. Where to next?
  • #31
  • Edited 4:19pm Jun 11, 2007 3:52pm | Edited 4:19pm
Central Banks intervening in the currency markets can get burnt very badly, just take a look at what happened on Black Wednesday here in the UK (which made George Soros very rich)!

If the RBNZ was really serious about allowing their Dollar to depreciate then they should really stop hiking interest rates, just the same as if Japan was serious about preventing its currency from being so weak then it would hike its interest rates so that it's Japanese baby boomers etc would not need to look to other countries for a savings account...
  • #32
  • Jun 11, 2007 4:08pm Jun 11, 2007 4:08pm
Quoting treberk
Central Banks intervening in the currency markets can get burnt very badly, just take a look at what happened on Black Wednesday here in the UK (which made George Soros very rich)!
This is true. The power of hedge funds and big names to match wits with central banks is well documented, and they do not like being told by academic economists that fundamentals do not justify price levels. However, the ERM event was unique. I would not be betting against the RBNZ.
  • #33
  • Jun 11, 2007 4:17pm Jun 11, 2007 4:17pm
now we're on the same track.

Quoting alexkazmarck
Dont' get me wrong Scrat, I'm with you on the correction. I just dont think it will happen right away. My point is that even central banks can be wrong. The signal is very clear - i think its been clear for the past several weeks as talks of unwinding carry trades has taken center stage. I just think money will follow return and for the time being... until Japan raises rates or makes comments regarding higher rates, money will flow out of Japan and into higher yields. I'm just wondering if there are other better choices than the NZD. With risk of a fallout higher than before, USD has been getting a boost from higher yields. Will they continue to go up? Its all about the flow of funds. Where to next?
Nihil Sine Deo.
  • #34
  • Jun 11, 2007 4:19pm Jun 11, 2007 4:19pm
Quoting treberk
Central Banks intervening in the currency markets can get burnt very badly, just take a look at what happened on Black Wednesday here in the UK (which made George Soros very rich)!

If the RBNZ was really serious about allowing their Dollar to depreciate then they should really stop hiking interest rates, just the same as if Japan was serious about preventing it's currency from being so weak then it would hike it's interest rates so that it's Japanese baby boomers etc would not need to look at other countries....

They would love to stop hiking rates, as they have been saying all along that they are unjustifiably high as it is. But the only way to slow growth is to hike rates. They are in a tough situation right now. They know that some more hikes may be in play, so they are doing the right thing by intervening. It's really the only thing they can do to attempt to keep this thing at a level where it won't absolutely kill their exports
  • #35
  • Jun 11, 2007 4:28pm Jun 11, 2007 4:28pm
I live in NZ and am constantly amazed at the authorities in my country. We are a small economy dependent on the export of primary products, when our $ is high exporters hurt and money floods into the country.This money has to be lent somewhere and guess where it ends up, fueling an out of control property market.So the RBNZ puts up rates again, money is easy to aquire for property speculation and other consumer lending e.g car loans so the vicious circle continues.Meanwhile the people/industries that actually give the country it's wealth can't export their products because our $ is too highly valued.
My solution would be to lower interest rates which would reduce the money supply and hence money avaliable for speculation in our property market, which believe it or not is what the RBNZ claims it is trying to acheive by raising rates.
I should be speculating on the Kiwi but I don't as normally there is not enough action.
  • #36
  • Jun 11, 2007 5:14pm Jun 11, 2007 5:14pm
Quoting edge540
I live in NZ and am constantly amazed at the authorities in my country. We are a small economy dependent on the export of primary products, when our $ is high exporters hurt and money floods into the country.This money has to be lent somewhere and guess where it ends up, fueling an out of control property market.So the RBNZ puts up rates again, money is easy to aquire for property speculation and other consumer lending e.g car loans so the vicious circle continues.Meanwhile the people/industries that actually give the country it's wealth can't export their products because our $ is too highly valued.
My solution would be to lower interest rates which would reduce the money supply and hence money avaliable for speculation in our property market, which believe it or not is what the RBNZ claims it is trying to acheive by raising rates.
I should be speculating on the Kiwi but I don't as normally there is not enough action.
You have some of your equations backward. Lowering interest rates INCREASES the money supply. Raising interest rates makes money HARDER to acquire. Would you find it easier to get a car/home loan if the interest rate was 1% or 20%?
  • #37
  • Jun 11, 2007 5:35pm Jun 11, 2007 5:35pm
I don't agree, in the case of our economy I have seen the banks and other lending institutions falling over backwards to lend money to anyone. In fact there has been a large amount money lent to people who are bad prospects and the consequence has been a few large finance company failures in the last 12months.Banks have been very keen to lend 100% to property speculators because there is a belief that property can never fall in value in this country! Now all this money has to come from somewhere and it's coming from other countries investing in our high interest rates.
I am actually in the used car business and when our interest rates are low lending criteria get much tougher and money is harder to get, which is the same with property mortgages. Anyway enough theory just watch for the Kiwi property crash which is inevitable.A big lender in the NZ property market is "The Hong Kong Bank" for example.
  • #38
  • Jun 11, 2007 6:02pm Jun 11, 2007 6:02pm
Quoting edge540
I don't agree, in the case of our economy I have seen the banks and other lending institutions falling over backwards to lend money to anyone. In fact there has been a large amount money lent to people who are bad prospects and the consequence has been a few large finance company failures in the last 12months.Banks have been very keen to lend 100% to property speculators because there is a belief that property can never fall in value in this country! Now all this money has to come from somewhere and it's coming from other countries investing in our high interest rates.
I am actually in the used car business and when our interest rates are low lending criteria get much tougher and money is harder to get, which is the same with property mortgages. Anyway enough theory just watch for the Kiwi property crash which is inevitable.A big lender in the NZ property market is "The Hong Kong Bank" for example.
A bank's willingness to make loans is not indicative of the overall availability of money. Banks make money by lending it out and collecting interest, so they will want to make loans whether the interest rate is 1%, 100%, or anywhere in between.

When interest rates rise, fewer consumers can AFFORD loans, and the flow of money dries up.
  • #39
  • Jun 11, 2007 6:04pm Jun 11, 2007 6:04pm
Quoting Bytebodger
A bank's willingness to make loans is not indicative of the overall availability of money. Banks make money by lending it out and collecting interest, so they will want to make loans whether the interest rate is 1%, 100%, or anywhere in between.

When interest rates rise, fewer consumers can AFFORD loans, and the flow of money dries up.
Poor Edge got himself in some trouble with his comment. Maybe he didn't mean it in that way... Edge... can you explain in further detail?

Alex K.
  • #40
  • Jun 11, 2007 6:32pm Jun 11, 2007 6:32pm
Quoting Bytebodger
You have some of your equations backward. Lowering interest rates INCREASES the money supply. Raising interest rates makes money HARDER to acquire. Would you find it easier to get a car/home loan if the interest rate was 1% or 20%?

Although reasonable thinking would suggest this relationship, this is certainly note the case in the UK.

With the 100 base point increase that we have had since August 2006 we now have banks willing to lend people more times their basic income in order to get on the extremely highly priced property market in the UK.

So, in this case you could say that with the increases in interest rates, which of course was partly fuelled by the ever increases in house prices, that the lending criteria has become less strict.

Thus, I believe there is much validilty in what edge540 says, afterall he does in fact live in New Zealand!
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