NZD vs. EUR: Economics 101 please

[emka]

Could some people please enlighten me on money matters? My naïve hope is that there are forumites with both an understanding of national economy/finance and an ability to word things in such a way that a person with an average IQ can understand.

I keep reading about “the Kiwi dollar’s strength” and that it has consequences for NZ exporters, i.e. the national economy. That’s the macro view.
I keep reading about the Kiwi dollar’s strength against the Greenback, the USD being the lead currency in international banking and trade.
People in UK/NZ forums keep worrying about the exchange rate of the NZD vs. GBP, another currency not tied to the Euro.
And I keep understanding nothing, to be honest.

Strengths and weaknesses of a currency depend on your point of view, the currency you compare it with, and which direction you want to exchange your money. That’s the micro view.
So what does it mean for someone having Euros and wanting/needing to exchange them to NZ dollars at some point?

Could somebody please explain to me what the current exchange rate of the NZD against the EUR means, especially viewed in perspective? At 1 NZD = 0.57 EUR or 1 EUR = 1.72 NZD the exchange rate is rather “bad” now from my point of view, especially if I compare it to the heydays of 2006/2007 when one Euro was about two dollars, i.e. “good” for me. (For me good and bad is more useful terminology than strong and weak).

I am aware of the current limbo of the Euro currency, i.e. the discussions whether the Euro zone is going to survive at all and that either way it might have major consequences on the value/exchange rate of the Euro. Of course it’s crystal-ball gazing, but somebody more advanced than Economics 101 and/or working in finance or banking might have a qualified opinion they would be willing to share.

To put it more simply: if you had Euros and were planning to live in NZ, would you hold on to them or transfer them and exchange them to NZ dollars now before whatever disaster happens to the Euro in the near future?

[ScottNZ]

The way to think of it is if you are moving to NZ from Europe, a strong Euro against the NZ dollar (also known as the kiwi) is a good thing. The money you’ve saved to bring with you is more valuable and will have more purchasing power when converted to NZ dollars when you arrive.
The flip side is if you visit or move to Europe from NZ with your NZ dollars you want a strong NZ dollar and weak Euro to be able to have more purchasing power with your NZ dollars in Europe.

This link shows the current exchange rate for Euros to NZ dollars.
http://finance.yahoo.com/currency-co...R;to=NZD;amt=1
As of this writing the Euro will buy $1.72 NZD

As for what will happen to the EU or the currency exchange rates in the future, that is mere speculation and anyone’s guess. Translation rates as of this moment are all that matters, because as they say price is reality. As for when to make the exchange, that is anyone's guess.

So moving from Germany to NZ you want to strong Euro (or Deutsch Mark) and weak NZD. The GBP versus the NZD shouldn’t concern you except for the fact that it may have some tangential impact on the other currency exchange rates.

[rogercruse]

...And I keep understanding nothing, to be honest...

Me too.

Brought enough money with me to get started, will sell my UK home and transfer more as I need to hoping that the rate improves / stays the same.

[emka]

@ ScottNZ
Ha, ha, was this a Freudian slip? I wish we still had the Deutsche Mark, for this currency was definitively strong while the Euro is not. (I know this is not PC thinking but there is still a surprising number of people who mourn the loss of the DM.)

But anyway, I'll wait for the EUR to become strong again, or at least stronger than it is now. Hopefully they'll nurse it back to an acceptable level of health...

I was just wondering how bad, from my point of view, the EUR-NZD exchange rate can get. Don't these economists always talk about cycles, i.e. ups following downs as a rule?

[shawankit]

My Suggestion :

If you have euro cash then best way to mitigate future issues of conversion is to buy gold coins/bars (ofcourse when gold prices are averaging).

This way you can avoid currency fluctations to some extent (negative effect to you either side). As gold prices move up in few years time (usually)

Then you can bring the gold to NZ and change it to NZD $$...if you want to.

[James 1077]

If I had any euro then I would be looking at selling them at just about anything and buying gold or guns ... probably both!

And if you live in Germany then I would be looking at getting far, far away before you and your kids become liable for paying off the debts of the entire eurozone.

Holding on to euro then you may be lucky and get a rise in the currency - even dead cats bounce a little ... but you have to wonder why the Chinese sovereign wealth funds refuse to get onboard - they have obviously decided they won't be able to make any money.

[Super_BQ]

I was just wondering how bad, from my point of view, the EUR-NZD exchange rate can get. Don't these economists always talk about cycles, i.e. ups following downs as a rule?

In the case of the EU, this has nothing to do with economic business cycles - it's more to do with the gov't being fiscally responsible. Either way, if your plans is to move to another country, I wouldn't even worry about where the exchange rate will go. Just exchange it to NZD so you can use it. If you think the EU will gain strength in time, then you're on the path of speculation - which is IMO, leads to stress.

but you have to wonder why the Chinese sovereign wealth funds refuse to get onboard - they have obviously decided they won't be able to make any money.

A lot of people didn't understand why China bought up so much US treasuries while the country was printing $ as much as they can during the mortgage crisis. By what basis of how the Chinese view the US over the EU? Maybe they think in America, Americans are bigger spenders and have better outcomes than what the EU can produce. From what i've read, the EU system has some huge flaws and critics say they're surprised it lasted this long.

[ralf-nz]

From what i've read, the EU system has some huge flaws and critics say they're surprised it lasted this long.

'lasted' or 'has lasted'?

Anyway the one big problem with the Euro zone is its flawed start. Of the twelve original countries just one fulfilled all four criteria that were originally mandatory. As nearly no country seemed to be able to manage these criteria got altered.
Ah yes, this one country was neither D, E, F nor I (GB has chosen not to participate) but the 'economically giant' LUX!
The further expansion did not really help...

[Super_BQ]

As nearly no country seemed to be able to manage these criteria got altered.

So kinda the same basis why Canada has legally withdrawn from the Kyoto agreement.

[emka]

@James1077:
Buying gold would be another gamble requiring nerves of steel to cash it in at the right moment. Buying a gun … well, I’m not that desperate yet.
And I can’t just take the money and run either; not for another two years. But I agree with you and the other euro skeptics that it doesn’t bode well for this artificial currency and many Germans worry about having to pay off the debts of their poor cousins. Oh, this sounds all so depressing.

I’ll give it some more thought over the holiday break. If I decide that selling euros even at a miserable 1.72 NZD = 1 EUR rate is better than holding on to them, I’ll probably get back to you to pick your brains about currency transfer companies, such as HiFx or World First. Banking fees are just plain rip-off. But then I don’t know how safe non-bank companies are and whether they don’t actually deduct some hidden transaction fees before the money is credited to an NZ account at the agreed exchange rate.