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According to Bloomberg’s November
11, 2009 issue, a great increase in the value of the
New Zealand dollar is not likely to be sustainable
and is likely to cause a retardation of the
country’s improvement of its present account
deficit.
This statement was made by Governor Allan
Bollard of the New Zealand Reserve Bank.
He further states that major factors that are
causing this decrease are the U.S. dollar’s
weakening and the increasing appetite for risk among
investors.
But it cannot be denied that part of the
increase was caused by the domestic economy’s
improvement. |
The currency of New Zealand has gone up twenty four percent
against the U.S. dollar in the past 6 months. It was, in
fact, the best performing currency according to Bloomberg.
Curbed exports and spending by tourists (which accounts for
approximately 40 percent of the country’s economy) by
stronger exchange rate has slowed the recovery of the
country from the worst recession to have hit the country in
3 decades.
According to the October 29, 2009 report of the Government,
in the 3rd quarter, exports fell by fourteen percent from
the previous year as the NZ dollar gains offset increasing
prices for aluminum and milk powder.
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Shareholders of Auckland were told by Chairman Keith
Smith that tourism’s curve of recovery is still
uncertain, that New Zealand needs to battle a
currency which is increasing.
New Zealand’s account deficit currently was over
five percent of the year-end’s gross domestic
product as compared with the more than eight percent
revision.
According to Bollard, the economy of New Zealand is
still indebted heavily and its overall condition is
still weak.
In the 2nd quarter, there was 0.1 percent increase
in gross domestic product which effectively ended
the worst recession that has ever experienced in 30
years which began in New Zealand in the 1st quarter
of 2008. |
Although there was a continuous rise in real estate prices,
the unemployment rate surged in the 3rd quarter to a 9-year
high and credit card spending by consumers fell in October
for the first time in 4 months.
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Bollard says that banks are continuously increasing
provisions for bad loans and have implied that are
unlikely to peak prior to the middle of 2010.
Relative to values of property, some banks have
started to give out bigger loans and there has been
a return to past home lending practices that are
riskier and should really be avoided.
On a historical basis, prices of houses are
relatively high and more gains will most probably
slow down as the phase of recovery passes and
lending rates begin to be increased by banks. |
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There is a need to make sure that there is no reappearance
of cycles of debt-fuelled housing since this would bring
even more pressure on the rate of exchange and would erode
competition, according to Bollard.
He further states that while the economy of the world is
improving, the sharp rise of the market’s global equity
starting March may have gotten ahead of the improvement
which is underlying.
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