Patience required with exchange rates

Gareth MorganEconomics

NZ Exchange rate - Patience requiredThe NZD is back to 82 cents US, although at 77 it remains well below its high of 81 against the Australian. Like the Australian at $1.06 close to its all time high against the US, 82 cents feels right up there – although we have been to 87 cents a year ago. But the difference this time is that our commodity prices have come off their peaks and we’re a bit down on those mid-2011 highs.

There are calls for the Reserve Bank to intervene but as always that would be high risk. What we’re witnessing is a rise in the currencies of all the commodity producers as the capital markets perceive world growth will slowly pick up despite Europe’s recession. For now that expectation is leading the recovery of commodity prices.

Unless The Reserve Bank thinks printing and selling NZDs into that enthusiasm will unhinge us from the upward pressures on other commodity currencies, it would soon find itself doing little else but stimulating the domestic economy, possibly with no sustained effect on the NZD. That would exacerbate the current account needlessly.

Better to wait to see if the markets’ expectations of a risk-on, commodity-price favourable, higher growth trajectory for the world is realised.

Patience required with exchange rates was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.