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04-07-2009, 09:43 AM
#1101
Member
Originally Posted by macduffy
macduffy
A great article
Scary thing is we can be played up and down by Hedge funds with little control by government. See lots more volatity to come. Not good for us as a country.
"More than 90 per cent of NZ dollar trades are against the US dollar yet the Reserve Bank estimates that only 59 per cent of New Zealand's overseas trade is transacted in this currency.
These figures clearly indicate that the NZ dollar has great liquidity, is widely traded, overseas investors dominate trading activity and only a tiny percentage of the transactions are trade related. In other words the Kiwi is one of the world's most speculative currencies and is the Las Vegas or Reno of the currency world.
The NZ dollar is a highly traded and speculative currency because it is totally deregulated, it is volatile, our economy is perceived to be commodity based, the NZ Government and Reserve Bank are too small to undertake effective intervention and there isn't a large enough pool of local private capital to influence the market.
This makes the NZ dollar extremely difficult to forecast because it is primarily driven by speculation - rather than fundamentals - and many of these speculators are relatively uninformed about New Zealand."
Last edited by srotherh; 04-07-2009 at 09:45 AM.
Running with the Bulls!!
Go with the flow
slimbo
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04-07-2009, 10:10 AM
#1102
Originally Posted by macduffy
Isnt the solution obvious. All businesses with any sort of foreign currency exposure need to make themselves capable of hedging appropriately. Surely this is a major opportunity for local brokers?
For clarity, nothing I say is advice....
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04-07-2009, 01:08 PM
#1103
There wasn't anything in the article that we didn't know, except the extremes to which this speculation has developed.
The NZD has been a favourite of currency speculators/investors ever since it was floated in 1984. It's always been standard advice for exporters to take forward cover to lock in their profit margins but there is a cost to this and many prefer to take a punt on a favourable trend and/or think that they can "read the market".
I used to believe that that was because so many of them were conditioned by their experiences in the late 70's/early 80's, especially during the time of the "crawling peg" when the NZD only moved one way, and in their favour!
But that was a long time ago and surely that influence has well and truly disappeared.
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04-07-2009, 01:27 PM
#1104
Originally Posted by macduffy
It's always been standard advice for exporters to take forward cover to lock in their profit margins but there is a cost to this
Easy to say take foreard cover but its not a free lunch either .... the cost is quite high and cash strapped businesses often can't afford to front up with the premiums
Although intent is to provide certainty around what costs or whatever it also hurts at times to see the cost of forward cover going down the 'gurgler' if the currency didn't do what you expected.
If only on knew eh?
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04-07-2009, 03:10 PM
#1105
Yes, the cost of forward cover has to be viewed in the same light as the cost of production, freight and insurance.
If an export deal won't stand up to these costs and return a reasonable profit then it's not viable and shouldn't be done. Hard but true.
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04-07-2009, 03:20 PM
#1106
Originally Posted by macduffy
Yes, the cost of forward cover has to be viewed in the same light as the cost of production, freight and insurance.
If an export deal won't stand up to these costs and return a reasonable profit then it's not viable and shouldn't be done. Hard but true.
Thats the key issue eh macduffy ... competitiveness
Sad but true many NZ companies not competitive with the rest of the world unless the NZD is weak
Another thing that happens is importers think they have a price advantage if they get their hedging right .... but forget that the competitor down the road is just as clever and has hedged as well
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05-07-2009, 03:10 PM
#1107
Member
is our NZ's RB printing money to cope with US Fed's quantitive easing??
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05-07-2009, 03:47 PM
#1108
Member
In respect of most companies - like Line 7 - there is only a premium if they are buying options.
Companies like this make all sorts of excuses about hedging and the NZD being the cause of their woes -it's nonsense - they know whether they are buyers or sellers for crying out loud.
What they want to do is to make money out of hedging, not just hedge. That is their downfall.
Last edited by Capitalist; 05-07-2009 at 03:57 PM.
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05-07-2009, 06:02 PM
#1109
Originally Posted by Capitalist
In respect of most companies - like Line 7 - there is only a premium if they are buying options.
Companies like this make all sorts of excuses about hedging and the NZD being the cause of their woes -it's nonsense - they know whether they are buyers or sellers for crying out loud.
What they want to do is to make money out of hedging, not just hedge. That is their downfall.
I'm well out of date with this but yes, that used to be the case.
A combination of reluctance to incur the cost, a "feeling for the forex market" and an inclination to take a punt.
I would hope that serious exporters are well past that, but hey, that's human nature!
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05-07-2009, 07:20 PM
#1110
If it is not the exchange rate, it will be the Chinese.. blah blah blah... We have heard it all before. A few months ago the finance crisis was the blame, but now it is the exchange rate. It was a mater of time really.
Went into the Line 7 store today. Even with a 60% discount there was nothing there worth buying, so bought some stuff from the Timberland store instead. The clothing are boring and blend with little imagination. Looks like all the clothes in Hallenstein and Farmers but at 4x the price tag.
Last edited by Dr_Who; 05-07-2009 at 07:24 PM.
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