Nzd usd

[ynot]

And my take on those numbers is the economy is shrinking despite inflation.

New govt has some work to do thats for sure.

[winner69]

Beveridge Curve looking good for you guys

[beacon]

... the economy is weakening with consumer spending down ...

Consumer spending cuts do not necessarily and always mean a weakening economy. I think these (reatail spending) cuts are transitory, and for the moment, just an adjustment of expense heads anyway. Further, consumers are adjusting their retail spending down in US too... https://www.cnbc.com/2023/11/22/desp...ding-less.html

... likelihood of a [NZ] rate cut sooner rather than later. If there is less yield comparative to other currencies then we should see the Kiwi weaken against them.

US is looking to cut too, so yield differential will not widen much even if Orr cuts earlier than him. Powell (like many other Central bankers including Orr) is in a hard place. He cannot appear dovish until he cuts.

None of this takes anything materially away from the advantage NZD is slowly, but surely, regaining on USD - especially as we have no QT. So, an OCR or FFR cut or parity can offer only a kaleidoscopic view at best, at the moment. Why then did NZD test 60c again after coming so close to 61c in the last 48 hours? I think cos USD was bid after UMich inflation expectations surprised everyone on the higher side.

Anyway, on net balance, I think a breach of 62c ceiling remains a distinct possibility this month.

[beacon]

I regret not buying at 0.5780, however I'm not sure NZD weakness has played out fully yet ...

I regret not buying more too. Reasoning gave way to caution (about market irrationality), and I trimmed my orders down all the way to 55c.
I think I've well and truly missed that boat now, but I remain happy for NZ that we didn't see 55c.

[beacon]

Beacon, better news, yes. But lest not forget that we are still running a monthly trade deficit of $1.5+ BILLION. Keep this behaviour up (living beyond our means) and the country will ultimately be poorer for it....leading to further value destruction of our currency.

You are using May figures, which was a record deficit. The deficit was NZ$14.8 billion in the 12 months through October, as per Statistics New Zealand.
That's 1.2 billion per month and falling, and the smallest since December 2022. https://www.bloomberg.com/news/artic...gap%20in%20May.

I do agree with you that it is still high, historically speaking, and that living within our means is a surer path to our prosperity. We can't curtail imports much, so we should get more innovative and productive with our exports, without continually trying to suck at the NZD depreciation teat.

[beacon]

And my take on those numbers is that the economy is shrinking despite inflation.

That's an interesting inference! Let us see now. Does the economy shrink if trade deficit falls and there is inflation? Hmmm...

A trade deficit occurs when a country imports more than it exports. In the short run, a negative balance of trade curbs inflation. However, over time, a substantial trade deficit weakens domestic industries and decreases job opportunities.

A current account deficit may imply the economy is becoming uncompetitive and the exchange rate relatively overvalued. For countries with a floating exchange rate like NZ, this is not so serious because market forces will cause a depreciation to restore competitiveness.

Recent research does not indicate that developing economies with current account deficits grow faster. https://www.thebalancemoney.com/trad...in-bop-3305898


Therefore, a fall in trade deficit may not necessarily shrink the economy.

In fact, a large trade deficit can actually indicate economic growth. When the economy of a country grows and strengthens, consumers have more wealth to buy goods from overseas, which will increase the trade deficit.

A strong economy also attracts foreign investors, further enlarging the trade deficit. Trade Deficit: Definition, Causes, and Economic Effects - 2023 - MasterClass

Reducing the value of the exchange rate can help to reduce a trade deficit. When NZD falls it makes NZ exports more competitive, increasing quantity demanded.
A depreciation also makes imports more expensive, reducing demand for imports and foreign holidays. Therefore, we would expect a depreciation to improve the trade deficit.


Hmmm... so on balance Daytr, I disagree with you. NZD should keep strengthening, given the circumstances!

[beacon]

Beveridge Curve looking good for you guys

Yeah, thanks again Winner. Down vertically, and extending right. Looking good for NZ...

The labour market remains strong, Vacancies trending down without a sharp rise in unemployment. https://www.rbnz.govt.nz/-/media/pro...ugust-2023.pdf

[beacon]

[Beveridge curve] Down vertically, and extending right. Looking good for NZ...

2023 1123 NZ Beveridge curve 2023 Q2 - down vertically and extending right.JPG

For those who want to know more: Special feature: Beveridge curve in New Zealand, https://www.mbie.govt.nz/business-an...n-new-zealand/


The Beveridge curve shows changes in matching between the demand for and supply of labour and reflects the business cycle. The time line in the graph above shows the time series in sequence, starting with 1990 Q1 and finishing with 2023 Q2.


The supply of labour is represented by the unemployment rate (people who were unemployed and actively seeking work) and the demand for labour is represented by the vacancy rate. The vacancy rate is calculated by dividing the internet vacancies by employment. The unemployment rate is the ratio of unemployment levels to the labour force. The vacancies are from Jobs Online (now a mature internet vacancy market), while employment and unemployment are from the Household Labour Force Survey (HLFS).


When the economy is expanding the vacancy rate is high. This usually corresponds with a lower unemployment rate, with the underlying implication that vacancies provide opportunities for those who are unemployed to gain employment.

Conversely, when the labour market is contracting the vacancy rate is low. This usually corresponds with a higher unemployment rate.

An upward shift can indicate a reduction in matching efficiency (the degree to which the skills of the unemployed match the requirements of the available jobs), as it implies that the unemployment rate does not fall with higher vacancy rates. The national and regional curves tend to shift to the right following a recession, due to uncertainties in the economy after the recession.

[winner69]

That's an interesting inference! Let us see now. Does the economy shrink if trade deficit falls and there is inflation? Hmmm...

A trade deficit occurs when a country imports more than it exports. In the short run, a negative balance of trade curbs inflation. However, over time, a substantial trade deficit weakens domestic industries and decreases job opportunities.

A current account deficit may imply the economy is becoming uncompetitive and the exchange rate relatively overvalued. For countries with a floating exchange rate like NZ, this is not so serious because market forces will cause a depreciation to restore competitiveness.

Recent research does not indicate that developing economies with current account deficits grow faster. https://www.thebalancemoney.com/trad...in-bop-3305898


Therefore, a fall in trade deficit may not necessarily shrink the economy.

In fact, a large trade deficit can actually indicate economic growth. When the economy of a country grows and strengthens, consumers have more wealth to buy goods from overseas, which will increase the trade deficit.

A strong economy also attracts foreign investors, further enlarging the trade deficit. Trade Deficit: Definition, Causes, and Economic Effects - 2023 - MasterClass

Reducing the value of the exchange rate can help to reduce a trade deficit. When NZD falls it makes NZ exports more competitive, increasing quantity demanded.
A depreciation also makes imports more expensive, reducing demand for imports and foreign holidays. Therefore, we would expect a depreciation to improve the trade deficit.


Hmmm... so on balance Daytr, I disagree with you. NZD should keep strengthening, given the circumstances!

Think through the basic GDP formula

GDP = private consumption + gross private investment + government investment + government spending + (exports – imports).

[beacon]

Think through the basic GDP formula

GDP = private consumption + gross private investment + government investment + government spending + (exports – imports).

(exports – imports) = Trade Surplus
So, GDP = private consumption + gross private investment + government investment + government spending + Trade Surplus

Ceteris paribus, GDP up (=economy growing) if Trade Surplus up, OR Trade Deficit (opposite of Trade Surplus) DOWN