Dollar in a dive

This is the healine of today’s Dominion Post. More recent news shows it has fallen to just over 67 US cents. This is a very steep fall. It was only weeks ago that I was writing about it getting to 81 cents (which turned out to be the highest it would reach). One important thing to note about the dollar is the way it has mirrored the actions of the NZX50 (sharemarket), especially over the last two months. This confirms my view that it is the strength of our economy that plays an important role in keeping our currency strong.

Another interesting observation is that the dolar has fallen despite the hike in the official cash rate (OCR) to 8.25%, its highest in a long time. Usually increases in the OCR push the New Zealand Dollar up. The drop in the New Zealand dollar is probably good for the economy overall, and will be icing on the cake for sheep, beef and especially dairy farmers enjoying high prices for their products. But it will hurt more than benefit many urban new Zealanders, who wil face hikes in petrol prices and other imported goods. However it still remains volatile and could bounce back up. The recent drop in the dollar and sharemarket coincides with a downturn in world markets. Despite this I remain convinced that our economy is very strong, with high export prices for our agricultural exports and a bigger than expected government surplus which gives more room for tax cuts (as well as Labour election bribes, something there will be lots of next year), and even if our economy does go sour, the high OCR can be reduced and more Government spending (or tax cuts) can take place to inject demand into the economy to make it grow again.

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Explore posts in the same categories: Economy, Exchange rates

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