Let the fiat wars continue: New Zealand economists "uncomfortable" with high Aussie $

Apparently, in the NWO, he who deflates currency the least loses?

I'll see your 9 Mexican factory workers and bet 11 Chinese factory workers...

We'll devalue the won so that we can continue to pressure German factory output and also give Hyundai's construction equipment unit a leg up on Caterpillar.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aH9g80rfdf4M

English Uncomfortable With New Zealand Dollar’s Surge (Update1)
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By Matthew Brockett and David Tweed

Oct. 8 (Bloomberg) -- New Zealand Finance Minister Bill English said the advance in the nation’s dollar, the world’s best performing currency in the past three months, threatens an export-led recovery.

“We’re uncomfortable with it at this stage in the economic cycle,” English said in an interview in London late yesterday. “Generally when we’ve had a recession, a low dollar has helped us kick-start out of that recession. That’s clearly not going to be the case this time.”

The New Zealand dollar climbed as high as 74.21 U.S. cents today and has surged 50 percent in the past seven months on speculation Reserve Bank Governor Alan Bollard will raise interest rates. Australia’s surprise decision this week to start tightening monetary policy prompted investors to increase bets on higher New Zealand borrowing costs.

“This exchange rate is going to make it pretty tough for a lot of businesses,” said Chris Tennent-Brown, economist at ASB Bank Ltd. in Auckland. “The export outlook is pretty weak and that’s going to take a bit of the sting out of growth over the next year, which is a good argument for the Reserve Bank hiking later rather than sooner.”

The New Zealand dollar, also known as the kiwi, has performed the best among the world’s 16 most active currencies over the past three months, climbing 18 percent against the U.S. dollar.

External Factors

English said the currency’s gains are being driven by external factors such as Australia’s performance and U.S. dollar weakness, and are aren’t in line with New Zealand’s current economic situation.

“We’re surprised that it’s as high as it is,” he said. “The economy’s been contracting for five quarters and it’s only just stabilized.”

New Zealand’s economy expanded 0.1 percent in the second quarter from the first. By contrast, Australia’s grew 0.6 percent. During the worst global slump since the Great Depression, Australian gross domestic product declined just once on a quarterly basis, in the fourth quarter of 2008.

“We get bundled in with Australia when over the last two years our performance has been significantly different,” English said. “We’re not the same. We’ve had a reasonably significant contraction and they haven’t.”

New Zealand business confidence jumped to a 10-year high in the third quarter, the Institute of Economic Research said this week. Commodity prices are also recovering, helping to offset the impact of the strong kiwi on export returns.

Export Markets

English said while the economy “probably” improved further in the third quarter, it’s not clear that the recovery will gather significant momentum. “Looking out over the next couple of years, credit is going to be reasonably tight, it will take some time for unemployment to stabilize and come down, and there’s uncertainty in our exports markets as well,” he said.

The Reserve Bank of Australia on Oct. 6 raised its benchmark interest rate to 3.25 percent from 3 percent and signaled further increases in coming months.

Bollard, who has held New Zealand’s benchmark rate at a record low of 2.5 percent since April, last month said he won’t raise borrowing costs until “the latter part of 2010” and may even reduce them further.

Investors don’t believe him. They’ve priced in 1.5 percentage points of rate increases in the coming 12 months, according to a Credit Suisse index based on swaps trading.

‘Difference in Opinion’

“We observe the difference in opinion,” English said, adding: “The bank is focused on inflation and there aren’t obvious signs of inflation pressure for now.”

While borrowing costs “will normalize at some stage,” English said that by reining in spending, the government “can influence just how far and how fast those interest rates rise.”

“We need to get public debt under control and that process is under way,” he said.

English is meeting with investors in Hong Kong and London as the government prepares to more than double outstanding government debt by selling about NZ$40 billion ($28.5 billion) of bonds over the next four years.

To contact the reporters on this story: Matthew Brockett in London at mbrockett1@bloomberg.net; David Tweed in London at dtweed@bloomberg.net.
Last Updated: October 7, 2009 21:24 EDT