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4
JUN 10

Carry Trade and Exchange Rates




New Zealand is highly exposed to both trade and carry trade. Exports at 30 odd percent of GDP and the weight of the carry trade with respect to GDP, even now the wires say we see the NZ$ traded at 43% of GNP on a daily basis (by the way that is the highest in the world).

There is a feeling – again largely in the non-traded economy – that inflation pressures are growing. Hence the conventional unidimensional approach lift the OCR, that drives the carry trade and moves the NZ$ well above where trade alone would place it - an overvalued currency (see IMF posts).  That of course lowers returns for exporters – the last time I looked that included the agricultural sector as well as manufacturers.

I have to say I have no idea how Federated Farmers can claim to represent their trade exposed members who did not climb on the bandwagon of farming capital gains, sacrificing their needs in favour of the ones who did and in so doing helped create the mess we are in.

A macro prudential response is the only one that does not come with an exchange rate kicker and that is the only one that can damp inflation pressures and support exports at the same time.

Is this really so hard to understand. In a deleveraging world income statements are much more important that balance sheets.

Much more discussion here (some of it is well informed):

www.interest.co.nz/news/exporters-call-reserve-bank-delay-ocr-hike-until-sept-16#comment-548186


 


tags: federated farmers, macroprudential, carry trade
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