Wild Currency Ride Set To Last
February 20th, 2009
Economists are predicting the dollar could be depressed for years yet, with a potential exchange rate below US50c. Good for exporters, but not the economy in general. The Kiwi has dropped by 15% against the US dollar in the past three months and is now about 30 cents below its high. The underlying factors in the shift are unsettling.
Some economists are predicting a dollar in the US48 to 50c mark. As interest rates fall, investors steer clear of “peripheral assets” such as the NZ dollar. The reality is a low dollar is an expression of all not being well in the economy. Currency traders and investors are looking to the underlying economics of currencies now, and exporters should be careful what they wish for. There is a narrow range at which everyone can be happy. If the dollar is above US60c exporters aren’t happy. If you’re below 60c, the importers aren’t.
We need a weaker currency to help the rebalancing, but we shouldn’t aspire to have a low currency. As a nation, we’re poorer.
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