Election and exchange rate

[joanne]

Hi guys, does anyone have an opinion on whether the forthcoming elections will have an effect upon the UK/NZ exchange rate .....

[Beach Kiwi]

Since Labour would have to do something amazingly stupid to lose the election, I don't think it will have much effect on the exchange rate. Fluctuations in other currencies will most likely be the prime movers of our dollar.

[Wannaway]

A friend of ours who works on the currency markets said to us that domestic currencies often get a temporary boost if elections are won by the party immediately in power before the election. Having said that, I don't think anybody is expecting anything other than Labour getting back in (just a case of the size of the majority) and this "certainty" may already be reflected in the currency rates at the moment.

I have read and heard so much on the NZ/UK economy recently, as well as been in a conference where a leading NZ economist gave his insights on where things were going. Do you know what conclusion I have come to over the last few days? No b**ger actually knows or can even predict with any degree of accuracy for the short term. For example, virtually everything I have read over the last few weeks has said that the US$ will continue to weaken but guess what, it is holding its own and showing signs of a comeback. The global economy is at a crtical point at the moment, we have been enjoying a long period of sustained growth and certain aspects of the market have been overheating (hiding worryingly poor trends elsewhere), if the major economies can take the steam out of the hot areas without tipping the balance, we could sail towards calmer waters otherwise, who knows where things may go (and, like it or lump it, the US economy largely dictates what will happen elsewhere).

As far as the kiwi dollar is concerned, the good news is that its continued strength is really going to start to hurt businesses this year and therefore there will be an increasing pressure for the dollar to weaken. Also commodity prices are beginning to drop from high levels of the last few years, something that has masked the effect of a strong Kiwi$ (NZ exports a lot of commodities - diary, timber, meat). Finally, the labour force is now so tight there is virtually no capacity anymore and with migrants numbers falling and not showing signs of picking up significantly, the brakes may start to have to be hit due to lack of labour supply in the market (and/or inflationary pressures as workers realise there strong position and ppush up wage demands).

Phew! Did not mean that to be a ramble, but I have now formed the view that nobody knows where the exchange rate is going to go at the moment, just keep watching the rates to see if a trend starts to form.

Lee

[Graham Barnes]

I'm not a professional...more of an amateur who dips his toe in the water from time to time; but, anyway, here goes...!

I'd say the key factor which determines the NZ Dollar exchange rate is what happens to the US Dollar. About 6 months earlier, one Central Banker described the NZD as something which 'bobs in the ocean' i.e. it is too small to exert any effect of its own, it just moves because of other external influences. I personally don't think that the fundamentals of the NZ economy have a huge effect on the NZD because the NZ eceonomy is so small. The only factor which is worth looking at is their much-higher-than-average interest rates.
The biggest by far of these influences at the moment is the weak USD because of budget deficits, current account deficits, and not least, the fact that at the moment it is in the interests of the US to let its currency gradually weaken.
If George Bush tightens up the US spending (and US consumers stop spending so much on overseas products), then the USD may well start to strengthen, and hence the NZD weaken.
If things run out of control in the US (or if Asian banks decide to stop funding these deficits), then the USD may collapse rather than the follow an 'orderly retreat'.
Also, watch out what the Asian countries do; they are instrumental in keeping the US dollar under control as they have to buy shed-loads of dollars to prevent their currencies from strengthening relative to it. If they suddenly stop buying... :eek

As regards the UK point of view, the UKP is balanced somewhere between the weakening USD and strong Euro. But Gordon Brown's excessive borrowing can only have a weakening effect on the Pound. As a % of the economy, we're not that far behind the US! More Labour taxes after the election might help to strengthen the UKP by bridging this gap.

On balance, my personal feeling is that the NZD is not going to weaken over the next 12 months, because of the factors discussed above. But then again, if I was certain about this, I wouldn't be teaching!!

:hopeso :hopeso :hopeso
Graham

[veronica]

Anyone got a crystal ball handy.

[Mildred]

Since Labour would have to do something amazingly stupid to lose the election

wot like go to war with Iraq etc etc etc

[Moorf]

What election?

[foolsgold99]

I must stop looking at the intraday charts 5 times a day, and getting upset when the pound drops a quarter cent..

I need more perspective.

[kiwidebs]

I must stop looking at the intraday charts 5 times a day, and getting upset when the pound drops a quarter cent..

And here was me thinking I was the only one doing that!!

[foolsgold99]

God this just gets more depressing, the pound has fallen to a 52 week low, it now under $2.60