Nervous investors cause dollar to drop
Mon, 07 May 2012 6:05p.m.
By Tony Field
European elections have brought relief for exporters here after nervous investors have pulled their money out of countries like New Zealand causing the Kiwi dollar to fall.
Investors are worried that the lack of a decisive result in the Greek elections increases the risk that the nation will default on its debts.
They are also concerned the new French president will not be able to agree with the German chancellor about the best way for the rest of Europe to sort out its economic problems.
“When [the dollar] does go down it is a relief for farmers and exporters – it means more dollars in farmers and exporters pockets and that’s good for the rest of New Zealand,” says Conor English of Federated Farmers.
But the Kiwi was falling even before this morning - markets were spooked late last week by weak jobs numbers, in the US and New Zealand.
“Everyone’s just basically looked at it and thought ‘oh, it is just too hard – we will pull money out of New Zealand and we will pull money out of Australia and we’ll go home and we’ll be safe’,” says Derek Rankin of Rankin Treasury.
Mr Rankin says the start of the year saw the Kiwi dollar rise over five cents as optimistic foreign investors poured money into New Zealand, despite dairy prices falling.
“We are not surprised by the New Zealand dollar falling at all, it should be falling. Our commodity prices are well down and therefore the currency compensates. It is doing exactly what it should be and it is giving exporters some relief,” say Mr Rankin.
“The fundamental issue that the Europeans have got to face is that there is no free lunch,” says Mr English.
“If you borrow a whole lot of money off people they want it back and they want to be paid interest for it. The new president that we have got now in France is going to have to grapple with that reality.”
Conor English says the long term outlook is good for food exporters like New Zealand but it is the immediate future that is more of a concern as Europe tries to sort out its debt problems.
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