Kiwi flying High

The question is how fast does it go up? Look at the interest rate differential USD vs Kiwi.

How profitable compared to other currencies? Check economic growth potential and USA economy.

Asian countries have high savings rate, so their growth are largely self funded. NZ has negative 5% savings rate. That is for every dollar NZer earn, they borrow $1.05 on average. This borrowing is financed by Japanese, Asian, European savings et al.

So long as NZ economy keep growing, interest rate high, the Kiwi dollar would keep going up, ceteris paribus.

Want to lower the Kiwi? Just take measures to deflate the economy. ie drastic increase in interest rate, introduce statutory reserve requirement to banks, introduce capital gains tax, compulsory savings etc.

Anyone want to park their money in New Zealand? EARN high interest rate, PLUS appreciation!

Kiwi could hit US80c, warns Key

By NICK CHURCHOUSE - The Dominion Post Thursday, 5 April 2007
National Party leader John Key has warned that the exchange rate crisis for exporters will get worse before it gets better.

Speaking to investment traders and private investors at a breakfast hosted by Wellington broking firm OMF, Mr Key said the Kiwi dollar was likely to go as high as US80c in the near future.

Even the present level of about US72c has created major difficulties for exporters.

"It doesn't show any sign that it wants to go down," said Mr Key, a former head of foreign exchange trading for international broking giant Merrill Lynch.

Predictions of a drop in the exchange rate had lulled exporters into a false sense of security and many had not planned ahead.

"Exporters are now scrambling to cover themselves."

But something had to give, because the economy could not operate for long above a US70c exchange rate, he said.

The Reserve Bank needed to get the interest rate down to discourage the influx of foreign capital.

Mr Key said cash reserves in Asia were mounting by about a trillion dollars a year, which was money that could end up in New Zealand.

"It's a massive wall of capital that's got to go somewhere and, at the moment, we are looking pretty attractive."

The Government had geared the economy to provide opportunity for high earners, but the outlook for those on low incomes was bleak, and welfare packages such as Working for Families made it worse.

"If you put people on welfare, every extra dollar they earn you have to take off them."

People needed incentives that would encourage them to improve their situation, rather than discourage them, Mr Key said.

Small businesses were another victim, with a economic culture that made growth hard.

High-salary jobs were typically held by lawyers or bankers, but emphasis needed to be put into encouraging more "Sam Morgans" to build their own businesses.

"We need a culture where people feel they can take a bit of a risk and the system is not going to crush them."

Literacy problems at early school age, and New Zealanders taking off for better wages and prospects overseas, were problems that needed attention too, he said.

With less of a focus on debt and more focus on growth, New Zealand's capacity for success was huge.

"But I'd change the management," he laughed.