Just as New Zealanders start planning their first overseas travel since Covid led to lockdowns, they find their dollar has slipped in value against other major currencies.
This could be of particular concern for those senior citizens who were looking forward to having a break during New Zealand’s winter months in the sunshine of Australia’s Gold Coast.
The irony of the fall in the value of the NZ dollar is its contrast with Finance Minister Grant Robertson’s insistence that the NZ economy has performed strongly (under his guidance) through the pandemic.
On that point some authorities have noted the NZ dollar has lost ground in comparison with Australia, even though NZ has higher interest rates than Australia.
But if Kiwis think the beaches in Hawaii might offer better value for their dollar than those of Queensland, they will have to think again, because the NZ dollar has slipped also against the greenback.
There is a further message in the comparison with the AUD. It implies financial markets have concluded that the Australian economy is more productive than NZ’s.
The positive to be drawn from the currency movement is that NZ’s export sector will have higher returns, (in local dollar terms). The dairy industry may find it offsets the lower prices recorded in the fortnightly Fonterra GDT auctions, if the fall against the US dollar to below 65USc is sustained.
On the other hand industrial commodities have been falling sharply: this movement means that returns for aluminium (from the Bluff smelter) and methanol (from the Motunui plant) will be lower.
In October 2018 the PM popped up with Kris Faafoi, Commerce and Consumer Affairs Minister at the time, to announce a government crackdown on loan sharks. Tough new measures were being introduced to protect people from loan sharks and truck shops
Jacinda Ardern said her government was committed to making New Zealand the best place to raise a child. To do this it must stop families becoming trapped in the appalling debt spirals and poverty that result from onerous lending and payback terms.
“These new measures will halt the very worst of those preying on vulnerable and desperate people while enabling borrowing that meets their needs in an affordable way.
“They will protect families through capping the total interest and fees charged loans, introducing tougher penalties for irresponsible lending, and raising the bar for consumer lenders to register as a Financial Service Provider,” Jacinda Ardern said.
A Bill introduced to Parliament in April 2019 amended the Credit Contracts and Consumer Finance Act 2003 by strengthening requirements to lend responsibly, especially in relation to how affordability and suitability tests should be conducted, limiting the accumulation of interest and fees on high-cost loans, and providing new remedies and penalties for non-compliance. It had been enacted by the end of the year. Continue reading “How the law aimed at protecting lenders (and their families) from loan sharks made it so much harder to borrow from banks”
The omens were good for the G7 summit at Carbis Bay in Cornwall. Untypical blazing sunshine and a victory for England’s footballers in the Euro Championships put the hosts in fine fettle (qualified only slightly by the NZ cricketers’ series win).
The first and most important objective was achieved: the world leaders managed to agree not to disagree. Even better, no one called the host, Britain’s PM Boris Johnson, “weak and dishonest”, no matter how much they might have been tempted.
But despite the 25 page summit communique, direction and leadership was a little harder to find.
Continue reading “G7 – the view from the top is fine, if a bit fuzzy”
Ever since the 2008 financial crisis, pessimists have been saying we are due a global inflation surge. So far they’ve been wrong. The world’s economies, particularly the rich ones, have sucked up fiscal and monetary stimulus and the biggest official concern has usually been that the inflation rate is too low.
But even a stopped clock eventually shows the right time. Given Covid-induced monetary and fiscal overdrive, might the worriers finally be proved right?
Continue reading “No need to worry; the consensus says inflation isn’t going to be a problem”
Boom or bubble? There is a growing divide in the investment world between those who think the recovery from the Covid-19 pandemic will add extra impetus to stock markets and those who think bubbles are inflating to bursting point.
At the beginning of the year global stock market indices hit new highs, adding another chapter, as one commentator noted, to 12 months of apparent defiance of economic gravity. The surge prompted the London “Economist” to ruminate on what it called the “crazy upward march in stock prices” and why it might just continue.
In assessing why markets could persist in “melting up” the Economist pointed to several factors driving the gains: an end to the Covid-19 pandemic is in sight; rich-world governments are rediscovering the joys of fiscal pump-priming; and real interest rates are so low as to make sky-high stocks look cheap. It noted, too, that markets had been looking beyond the damage from Covid-19 to the post-pandemic recovery. Continue reading “Half-year reports will enable investors to work out for themselves if surge is about to become bust”
The NZ sharemarket bounded to a new high on Wednesday, with the NZX-50 index surpassing the previous peak to climb above 12870.
Investors are not exactly dancing in the streets, although in past eras they might have been.
But there seems to be a clear conviction among investors that the NZ economy is escaping from the shackles of the Covid-19 pandemic faster than most others, and anyway, where else can funds be placed for a decent return (apart from the overheated housing sector)?
Strangely, too, the market hit its new peak just as the gloss had gone from the stocks which had enjoyed to that point the status of market darlings, F&P Healthcare and A2 Milk. Continue reading “Market darlings falter but the rise of other stocks has lifted the NZX-50 to a new record”
Monetary policy is difficult.
Economist Scott Sumner describes in his blog how the thinking of an intellectual giant like John Maynard Keynes evolved through three distinct phases in the 1920s and 30s. As the man himself is reputed to have said “When the facts change, I change my mind. What do you do?”. Sumner then argues that the thinking of the economics profession repeated pretty much the same pattern of evolution over the last decades of the twentieth century.
It makes a persuasive case for intellectual humility in general, and in monetary policy in particular. Even more so in unusual times. The forcefulness and fluency of experts can conceal the fact that they are testing new ideas when they make policy.
Continue reading “Can the world economy continue to float on a cushion of debt?”
History looks for a trigger for the economy crashing: the 1929 stock market panic, the 1970s oil shock or the 2008 subprime meltdown. But while the headline events can be a catalyst, sober analysis usually gives a more complex backstory of growing economic imbalances and disastrous-with-hindsight policy settings.
So casting the Covid shock as the proximate cause, what might be underlying drivers of a sustained deterioration in the economic climate? Continue reading “How a crash (of sorts) might come”
Here’s a conundrum: thousands of New Zealanders are losing their jobs, yet the NZX top 50 index is back almost to its peak of 12,065 it hit on February 20.
Opposition politicians say NZ is facing an economic disaster. As many as 150,000 jobs could be lost. The Reserve Bank believes unemployment will rise to 9%.
The sector which was the country’s biggest foreign exchange earner has been shut down. International education which brought in $5bn has also gone down the plughole. And all the government is doing is throwing billions at the problem in wage subsidies.
Of course there is relief that the country has succeeded in quelling Covid-19 under the leadership of Jacinda Ardern (for which she is admired around the world), and has moved to alert level one. Continue reading “Making the most of it might be smarter than trying to fathom reasons for the NZX’s big bounce-back”
Are central bankers jealous that epidemiologists are the rock stars of the current crisis?
There is talk that both the British and New Zealand central banks might institute negative interest rates as part of the policy response to the Covid shock. Continue reading “Don’t expect too much if we get negative interest rates”