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Um, what just happened in New Zealand?

  •  iya
  • | Joined Oct 2006 | Status: always protect yourself | 129 Posts
Quoting zamans98
Agreed, never underestimate a central bank power.

heck, they can simply PEG their currency to USD. Then what?
Well, they could certainly try to peg, but they will need to be able to provide enough liquidity. I assume they have a potentially unlimited supply of NZD, so they would be able to peg it to the upside. But they don't want to! It would be a gift to foreign investors and create inflation.

Quoting kzazs
The other easier option is to introduce higher taxes for all foriegn investors. That will take care of all this mindless buying of NZD assets.
Although I don't like taxes, in general – why would local investment be better than foreign – it would probably work. But the rising exchange rate is in fact already giving a similar result.

It's not so much a war between the central bank and traders, but rather a war between the central banks of different countries.

What's driving up the NZD is the excess liquidity, created by the Fed and BOJ. What is supposed to help along the struggling sectors of their economies is actually flowing into more promising fields, or anything that's currently 'hot' and creates inflationist bubbles there. New Zealand is one of these bubbles. It's simply one of the favorite locations on our planet at the moment.

Finally a few thoughts, if it's really such a big problem.
For many industries, the benefits of cheaper imports for raw materials like oil actually outweigh the lower export prices.
Even farmers etc., who use domestic resources to create what they sell abroad, would face no disadvantage, if they choose to import from the countries, where the exported to. For example they can afford to sell their meat nominal cheaper in Japan, because they can get as cheap electronics or cars in return. For the meat they sell in New Zealand, they can in return buy local stuff, indifferent from the exchange rate, as well. The same for trade with e.g. Australia, which has a strong currency, too.

Even better for people or corporations that have been saving their NZD, because now they can buy even more consumer or capital goods from abroad, which makes them richer in real wealth.
Quoting iya
Well, they could certainly try to peg, but they will need to be able to provide enough liquidity. I assume they have a potentially unlimited supply of NZD, so they would be able to peg it to the upside. But they don't want to! It would be a gift to foreign investors and create inflation.
No, it has been proven since 1997 Asian Crisis that a fixed PEG will not create inflation or vice-versa. Another arsenal is the central bank RESERVE.
Quoting iya
Well, they could certainly try
Even farmers etc., who use domestic resources to create what they sell abroad, would face no disadvantage, if they choose to import from the countries, where the exported to. For example they can afford to sell their meat nominal cheaper in Japan, because they can get as cheap electronics or cars in return. For the meat they sell in New Zealand, they can in return buy local stuff, indifferent from the exchange rate, as well. The same for trade with e.g. Australia, which has a strong currency, too.
Althought, I somehow agree with your oppinion, I don't think(i didn't research it) that NZ have such a big trading excahnge with Japan that RBNZ should intervin in this pair. From my poit of view, farmers can still sign-ups contract with Japan in eur or usd, to don't be affected by carry trading and they still can buy all thos cheap things from Japan, that were made cheap by carry trading.
I really thing that when RBNZ took the decision to drive so high the interest rate, they had in mind the consciences
"Abandon all hope, you who enter here" La Divina Commedia, Dante Alighieri
  • Post #84
  • Quote
  • Edited Jul 2, 2007 12:12am Jul 1, 2007 11:32pm | Edited Jul 2, 2007 12:12am
Quoting Firstboss
Sorry, Bytebodger, but I'd like to thank RBNZ - they just saved me. I was deeply short NZD/USD and long AUD/NZD since Friday morning! :-)
Good luck!
I hope that the RBNZ did save you and you got out of your shorts.

At present the RBNZ's 3 clear interventions in the curency market has had little impact in bringing down the value of the New Zealand Dollar, NZD. It makes one wonder about the credibility of the people who run the RBNZ and whether they know what they are doing. If certain sections of their economy are causing higher than wanted inflation, as some people attribute to the housing sector, then surely it would be better to put a tax on the housing sector or increase the taxes if they already exist?
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Quoting treberk
I hope that the RBNZ did save you and you got out of your shorts.

At present the RBNZ's 2 clear interventions in the curency market has had little impact in bringing down the value of the New Zealand Dollar, NZD. It makes one wonder about the credibility of the people who run the RBNZ and whether they know what they are doing. If certain sections of their economy are causing higher than wanted inflation, as some people attribute to the housing sector, then surely it would be better to put a tax on the housing sector or increase the taxes if they already exist?
Re. taxes - they can't be implemented by a central bank, they take awhile, and have to be freely debated in a democracy, and the legislators supporting a tax get held responsible. Re. intervention - The central bank's main role here is to re-introduce risk, otherwise the rate of growth of the pair becomes such that it becomes unreliable as a medium of foreign trade, the same way an excessive collapse would cause it to be. Manageable growth might be in the range of 10-20% per year (averaged over several years); I would expect them to probably manage it that way, which takes much less cash, and is much less sensitive to the whims of the voting public.
it keeps reaching high and high.

Nothing to STOP ?

I still have my short.. Almost hit SL few minutes ago
  • Post #87
  • Quote
  • Last Post: Jul 3, 2007 12:55am Jul 3, 2007 12:55am
Well said iya.
Quoting iya
What's driving up the NZD is the excess liquidity, created by the Fed and BOJ. What is supposed to help along the struggling sectors of their economies is actually flowing into more promising fields, or anything that's currently 'hot' and creates inflationist bubbles there. New Zealand is one of these bubbles. It's simply one of the favorite locations on our planet at the moment.
I'm looking for a loud pop.
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