Chch EQ = shortage of NZD > NZD price rise?

[belgarion]

Any chance the offshore re-insurance folk (local insurers getting USD from re-insurers) are buying up NZD to pay for Chch EQ claims and this is driving up the NZD? I.e. the NZD rise is about the shortage of NZD in the system rather than Kiwi Inc fundementals? ...

Anyone know? Does the NZ RB have any responsibilities in this area to manage the supply?

[Xerof]

Yes, Belg, every chance, but not the sole reason

Anyone know? No

RBNZ responsibilities? None, it's a freely tradable floating currency

[loofa]

Yes and you can bet the fly boys are betting on just that
PLUS Bill English is still borrowing at least $300m each week to make sure he and his mates get elected again in November.
Most of that has to convert into NZD to help pay for the ill advised tax cuts......


......Then in December the axe falls!

[loofa]

And what about all that cash the Chinese investors have that they are not allowed to now invest in second and third houses at home.
It is buying up property in Auckland at ridiculously low returns from rent and artificially holding up the market.
All that cash has to convert to NZD also.

I wonder if our IRD is on to their income from these or are they taking it gross?

[Hoop]

Many people in NZ look for a bad reason and are persistent NZ knockers....maybe..just maybe...this high currency is the result of NZ inc getting it right for a change.

The traditional safe haven big player countries eg USA are perceived as financially uncertain atm and Britain Germany and Switzerland are seen as too close to the possible EU meltdown arena.

NZ is globally reported as doing very well economically in comparison to others atm and we are also financially and politically stable as well.... so it comes as no surprise the world investors are focusing on our currency.

NZ being successful also has its downfalls ...eh

[winner69]

And Bollard was a wimp this morning keeping the OCR rate down ... seems like he is only worried about the NZD and none of the other fundamnetals

We should be proud to have a strong currency - means the world sees us in good light

[loofa]

And Bollard was a wimp this morning keeping the OCR rate down ... seems like he is only worried about the NZD and none of the other fundamnetals

We should be proud to have a strong currency - means the world sees us in good light

I would be glad to be proud of the dollar strength except it seems the emperor has very few clothes once you strip away
1. Re-insurance currency conversion
2. Falling commodity prices
3. Conversion of $300m/week external borrowing into NZD
4. Government re-election padding
5. Potential tourism softening post world cup
6. Pressures on existing non-commodity exporters -are there any left?
Do you need any more?

[winner69]

I would be glad to be proud of the dollar strength except it seems the emperor has very few clothes once you strip away
1. Re-insurance currency conversion
2. Falling commodity prices
3. Conversion of $300m/week external borrowing into NZD
4. Government re-election padding
5. Potential tourism softening post world cup
6. Pressures on existing non-commodity exporters -are there any left?
Do you need any more?

so country is stuffed then?

[loofa]

so country is stuffed then?

;o)
We do have the eternal optimism of John Key.
It really depends on how you measure that when the alternative is Phil Goff.

On second thoughts the answer to your question is YES

However do not fret. We currently spend only 8% of every export dollar servicing existing debt.

[Halebop]

In answer to the original question, yes Reinsurers have started transferring funds to NZ. While we couldn't know where the dollar would be without it, we can still assume that the additional demand would be putting upwards pressure on the NZD that would otherwise not have been there but for the insurance events if recent times.

To add to the meanderings of this thread - domestically we have something like the imacts of a massive property boom in a very narrow geographic region about to kick off. While the ground is still shaking, insurance companies are still mulling the pros and cons of cash settlements which to date have only occured sporadically. If this occurs in more volume, the money could easily find itself more directly in other sectors (Perhaps even a few near retirement Baby Boomers will find it all a bit too hard and just retire instead of rebuilding their business?). But overall, it's hard to imagine how the replenishment of building stock, housing stock, household contents and business assets won't have an uplifting impact.

Nothwithstanding some declining commodity prices, overall they remain high and our terms of trade strong. Coupled with a looming reinsurer inspired current account uplift, it's hard to see a low dollar or materially softening economy.

If only we could manage a productivity improvement as well? Suspect Christchurch will drive the opposite.

Am not quite surprised but a wet approach from the reserve bank deserves at least a lifted eyebrow...

[belgarion]

Hi Halebop, Hoop et al,

The good Dr has been roundly critisised for his dovish "steady as she goes" approach to the OCR. When looking through the sources of the comments the biggest knockers appears to be bank economists? Why would this be? Do they perhaps not subscribe to the "new normal" that perhaps the good Dr is giving a chance?

So what is the "new normal"? If the OCR was currently at 5% and the Dr hinted that rates would be moving up in Sept the effect of the hint is exactly the same to borrowers as it is now at 2.5%. Basically, the rate is going up! Be prepared.

The new normal says it doesn't matter what it is now ... just that its going up. With wage inflation low and pricing increases difficult to push through due to spare capacity on the supply side, the effect on borrowers will be a greater focus on their household budgets to ensure even small changes in cash outllays can be managed.

The "new normal" also says that borrowers aren't looking at long term average rates as they aren't that keen to borrow anymore following the GFC. The new normal also says that most borrowers aren't seeing huge captital gains like we've seen in the last 10 years for probably another 10 years or more.

The good Dr may actually be reading the new normal far better than many. Long term investing wants low long term averages in i-rates. A one to two percent reduction in long term i-rate averages in NZ; say like the US which is consistently 2-3 percent points below NZ's; would have a fairly profound affect on NZ's longer term prosperity.

I think, at this juncture at least, the good Dr has it right in taking a wait and see approach. The current data is clouded significantly by one-offs. I'd also advise him not to remove the Chch EQ cut until the last possible moment if he's going to do the full 0.5 rise so as to maximise it shock effect. In nZ, its consumption lending we need to address, not investment lending.

editted: Just found this:

But Deutsche Bank chief economist Darren Gibbs said most of the inflation pressure was coming from offshore sources like global oil and food prices, which the central bank could do nothing about, rather than excess demand in the economy.

No amount of monetary policy tightening was going to get oil companies to cut their petrol prices, he said, or prevent high export commodity prices from flowing through to the price of food on supermarket shelves.

Truly domestic inflation looked very subdued, Gibbs said.

"Had it been me, I would have been content to spend a few more months with rates around where they are today," Gibbs said.

"Central banks know very well how to slow economies that are rampant. The difficulty, when rates are already at low levels, is in restarting economies when confidence tanks."
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10741489

I couldn't agree more. Good on you Darren. Shame the US isn't taking head of you words (but then they're not listening to Krugman either - pack of fools)!

[Xerof]

Belg,


I also agree wholeheartedly with Gibbs comments - RB has no control over food/petrol, and strip those out of the figures, inflation is very subdued

Trading Bank economists bleating very loudly - perhaps it has something to do with the fact Deustche are not players in the mortgage market.......and hence do not have a position to talk up........

I do however agree they can take the 'emergency' 50 pips away next time

[belgarion]

I do however agree they can take the 'emergency' 50 pips away next time

Why do you agree?

If there is no demand for money that is causing inflation then why shouldn't the rate stay as it is (or more perhaps even fall)?

Surely you're not falling for the move-towards-the-long-term-average philosphy too?

To me it's just dumb economic science that will ensure NZ's i-rates are always too high and the NZD with it. I.e. dumb kiwis go "its always been like this so there's nothing wrong with it". Meanwhile Ocker banks make huge margins out of dumb NZ'ers who just won't get it!