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How high is the NZD - really?

Posted by Graham Parlane on 13 March 2014


I detect the sense from my client base that the overall feeling is that the NZD complex is high or even ‘overvalued’. In a historical sense it may seem that way but let me assure you the current levels are far from an impediment to the trading of NZ Inc. Best put, not all NZD/USD rates at 0.8500 are equal.

Indeed today the RBNZ said “the opportunities for FX intervention are low”. That’s because point no 1 in the intervention checklist is “is the currency overvalued?” It’s not.

NZ Inc. is enjoying a terms of trade situation that is the best in 40 years. That saying that our export receipts minus our import costs are the best net situation that they’ve been in 4 decades. The prices we receive for our exports have risen faster than the exchange rate. Since the NZD was at 0.8800 in Aug 2011 our dairy price returns have increased by about 46% !

NZ Inc. is experiencing the fastest net inward flow of people in 10 years. +30,000 last year.

NZ Inc. has consumer and business confidence at 20 year highs. These surveys are highly correlated with future growth outcomes.

NZ Inc. is experiencing a huge positive shock from the Canterbury rebuild.

Overall monetary conditions are not as restrictive to business as they’ve been in the past. When the NZD/USD was at 0.82 in 2008 the cash rate was 8.25%.

The U.S. Federal Reserve has stated that they do not see the need to raise interest rates until at least mid-2015. Looking at the RBNZ’s forecasts today, NZ will have made six 0.25% rate rises by then! Currencies are still mainly determined by the change in interest rate differentials above all else.

The NZD is not ‘high’. Far from it. There is no fundamental ‘ceiling’ to cap this thing anytime soon.


BBY (NZ) Limited, a specialist advisor in Futures - FX - CFD - Options - Shares - Gold - Silver - Commodities

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