The currency strength is as much about our foreign borrowing (mostly by the government), the reinsurance inflows and the US dollar money printing in both America and China.
Key can't blame either commodity prices or a weak US economy any more. Our currency is near record highs against most currencies and is strengthening against the Australian dollar.
In my view Bollard and Key are comfortable letting the the currency rise to do their own dirty work. Key likes a strong currency because it is good in the short term for consumers by keeping petrol prices, import prices and overseas holiday prices down.
It helps him get elected on November 26.
Bollard likes a strong currency because it helps him control inflation in the short term without having to increase the Official Cash Rate. It means he can delay a rate hike until December 8. Key likes that too because any rate hike would be after the election.
In my view this is short term thinking that will stop the long term transformation needed to turn New Zealand into a producing, exporting and saving nation from a consuming, importing and borrowing nation.
In my view, our government needs to stop borrowing so much for a start and encourage much more domestic savings. Cutting KiwiSaver incentives and cutting income taxes while still spending large on middle class welfare doesn't do that.
The Reserve Bank needs to crack down much more on domestic borrowing funded through foreign borrowing. It is investigating macro-prudential controls, but needs to move faster and do more. It also needs to look at intervening to get the New Zealand dollar. This is what Brazil's central bank has done.
Bollard has done it before in 2007 when the TWI rose to similar levels. He no longer has the fig leaf of high commodity prices.
How on earth are we going to export more high value, high wage-producing goods with a currency headed for parity vs the US dollar?
Key and Bollard should stop turning a blind eye to exporters and focus less on keeping borrowers and voters happy.
- INTEREST.CO.NZ
