[CjChris]

Last year this time we were thinking about what an advantage we'd have exchanging our US dollars for kiwi dollars. Now, we're watching that number dwindle....

Read the NZ Herald article here. (http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10453330)

[stu70]

What gives? In one word "Bush". But greenback will come back to life, no doubt about that. That will happen as soon as the Americans head to the polls.

[toesonthenose]

Americas biggest export is dollars, until that changes this trend will continue.

[kanatakiwi]

US dollar is in the toilet. almost all other currencies are moving up against it.

[barryp]

What gives? In one word "Bush". But greenback will come back to life, no doubt about that. That will happen as soon as the Americans head to the polls.

I don't follow that at all. Why is the USD weak? Lots of debate but no one disputes the down indicators:
- Chronic Federal budget deficits
- Low and intermittent productivity gains
- Underreported inflation in silly things like food and transport
- Chronic trade imbalances
- Housing market is either stagnant (LA and NY metro, for example) or declining (most obviously FL and NV)
- Asian trading partners less willing to buy USD

Bush has nothing to do with those problems, except the first. (Never met a spending bill he didn't like, so long as abortion funding is not included; and that 5 year Iraq adventure has been quite the cash sink.)

I find the discussions in NZ on this subject rather amusing - it is as though US policy is specifically strengthening the NZD and creating havoc with NZ export businesses. The NZD isn't getting that much stronger - the USD is just getting weaker, faster. The only people in the US who care one whit are currency hedgers, and an adventurous few who enjoy 7-8% return on cash.

[stu70]

It is really simple to be honest. Bush's obsession with Iraq and with his team focused on one issue(mid east/terror etc) has left the matters like prosperity of the nation on the back burner. Just look at US Dollar's woes since this administration took over and you will be able to see the trend. The moment you start running a huge deficit and do not have a matching growth in your GDP usually entails dilution of the currency. Add to that the perception that US economy is at the mercy of countries like China (and they do hold a good chunk of US foreign debt) and the rise of European economic power on the world stage can only mean one thing; lack of faith in US dollar as the "world currency". The point is, it is not necessarily the doings of Canada and NZ that their currencies have seen tremendous growth vis a vis USD; it is a case of American economy faltering and thus others riding the wave. Again, please note the effects of the "presidential cycle". US dollar will come back against major currencies in months to come. And that will be a good thing.

[Nathan]

.... the down indicators:
- Chronic Federal budget deficits
- Low and intermittent productivity gains
- Underreported inflation in silly things like food and transport
- Chronic trade imbalances
- Housing market is either stagnant (LA and NY metro, for example) or declining (most obviously FL and NV)
- Asian trading partners less willing to buy USD
....

- Budget deficits.... well, we were on the right track through most of the '90s.
- Inflation numbers have been messed with for years here, yes.
- Chronic trade imbalances.... probably not relavent as long as the nation is producing something tangible, which it seems to be doing less and less. As long as people had something to spend (besides credit) we were OK....not anymore.
- housing market... no correlation. US$ was faltering well ahead of the leak in the house bubble.
- Asian TPs not buying US$... and the current administration has done absolutely nothing to improve the situation.

It's as if the country were being led by someone with a career history of running businesses into the ground... Oh! I guess he did that, too!

[jen]

On a lighter note - The United States as Cheap Tourist Hot Spot (http://www.slate.com/id/2170745/nav/tap3/)

Jen

[Super_BQ]

My question is when will China (and most trading nations) will go off the USD currency and start international trades in their own common currecy?

I have my eyes set on the China RMB in the long term.

High interest rates in NZ is problematic. The fact is there's not a lot the NZ gov't can do to control inflation other than raise interest rates. This creates disparities between the rich and the poor as wealthy people bank the interest while the less wealthy rely on bank interest payments on their mortgages.

BTW, how much does NZ rely on exports when compared to say tourism? Indicators show that the high NZ$ has not effected exports much - in many areas exports has grown.

For those looking to exchange currencies, you're best to do so at the time when you NEED to do it. Don't start playing the stock market 'buy low & sell high' idea because in most cases, you'll never time it right.

BTW, NZ central reserve bank raised interest rates another .25 points. Soon you won't be able to mortgage less than double digits.

[DrPhred]

A big change has to do with the number of countries that are using Euros vs US dollars to buy oil. In the past it has been necessary to buy vast amounts of US$ to use to buy oil. This kept the demand for US$ very high. A number of countries that the US off (like Iran) now require that other countries use Euros. The Euro goes up, the US$ goes down.

[EngiNurse]

A big change has to do with the number of countries that are using Euros vs US dollars to buy oil. In the past it has been necessary to buy vast amounts of US$ to use to buy oil. This kept the demand for US$ very high. A number of countries that the US off (like Iran) now require that other countries use Euros. The Euro goes up, the US$ goes down.That effect is so minimal as to be completely inconsequential. The daily volume of dollar denominated trades on ForEx markets completely dwarfs the daily volume of oil traded.

A nice debunking of this here: http://www.safehaven.com/showarticle.cfm?id=720&pv=1

The USD was too high for a long time. It was due for a drop, and it is beneficial in some areas (i.e. reducing the trade deficit). Boeing, for one, is loving it.

[stu70]

That effect is so minimal as to be completely inconsequential. The daily volume of dollar denominated trades on ForEx markets completely dwarfs the daily volume of oil traded.

A nice debunking of this here: http://www.safehaven.com/showarticle.cfm?id=720&pv=1

The USD was too high for a long time. It was due for a drop, and it is beneficial in some areas (i.e. reducing the trade deficit). Boeing, for one, is loving it.

The USD's fast track to becoming "peso" is something that worries even folks in the GOP! There is nothing sensible about this "correction". It is a direct result of mismanagement of economy and a complacent view that we are the world so it will all work out in the end. Before you know this will impact American standard of living. I can tell you, overnight travel from the USA to Canada has dropped so much that its not even funny and it is mainly due to eroding purchasing power of their currency. And if China starts thinking about dumping greenback, its anybody's guess what will happen to the USD.

[Chiba]

That effect is so minimal as to be completely inconsequential. The daily volume of dollar denominated trades on ForEx markets completely dwarfs the daily volume of oil traded.


Good, pragmatic, article you linked to. Here's another good one from that site:

http://www.safehaven.com/showarticle.cfm?id=7800

[phatsharpie]

I have to admit I am not an expert in monetary policies. I was listen to Radio NZ the other day and an economist was saying that it's probably a good idea for NZ to peg its dollar to the US or a basket of currencies - much like Hong Kong. According tot he economist, it's the best thing to do for smaller economies like NZ's. Can anyone explain the drawbacks of such an approach? NZ dollar was quite recently floated, so I was wondering what's the pros and cons of pegging and floating?

Brian

[sfordjasiri]

I have to admit I am not an expert in monetary policies. I was listen to Radio NZ the other day and an economist was saying that it's probably a good idea for NZ to peg its dollar to the US or a basket of currencies - much like Hong Kong. According tot he economist, it's the best thing to do for smaller economies like NZ's. Can anyone explain the drawbacks of such an approach? NZ dollar was quite recently floated, so I was wondering what's the pros and cons of pegging and floating?

Brian

If a country pegs its currency to another currency it loses the ability to use interest rates to speed up of slow down its economy. (There are other ways to do it, but setting interest rates is a simple way to do it.)

This problem is the problem they have in the Euro area. If Germany's economy is slow, Germany cannot unilaterally lower interest rates on the Euro in order to stimulate its economy. Same problem for ecomomies that are overheating. They can't raise interest rates.

As far as the US dollar is concerned, I think it will only go down as the US eventually has to print dollars to pay its 9 trillion dollar debt to all the countries that have loaned it money. (I.e. it will do a defacto devaluation of its currency.) I can't see the US "growing" out of its debt. But, I've been saying that for a few years now, and everyone still seems to be willing to loan the US money to spend more than it produces.

[EngiNurse]

The USD's fast track to becoming "peso" is something that worries even folks in the GOP! There is nothing sensible about this "correction". It is a direct result of mismanagement of economy and a complacent view that we are the world so it will all work out in the end. Before you know this will impact American standard of living. I can tell you, overnight travel from the USA to Canada has dropped so much that its not even funny and it is mainly due to eroding purchasing power of their currency. And if China starts thinking about dumping greenback, its anybody's guess what will happen to the USD.Sorry, I just don't see it.

China can't afford to "dump" the greenback, unless you believe that they're willing to write off about $1 Trillion of dollar denominated treasuries. I, personally, don't think they are. And given their currency is currently tied to the US dollar, they have no interest in causing a crash.

The dollar will continue to slide. Hoepefully, slowly, because if it crashes, the world will be in a lot of pain.