Thinking of buying a flat-screen television? Wondering if you should employ more people for your export business? Wait a bit, because our currency is set to become more powerful for importers and disastrous for exporters, and those who compete with importers.
The dollar seems set to rise towards US$1. The US Federal Reserve this week announced an unlimited plan for money-printing. It pledged to print US$40 billion a month and buy US mortgage bonds until unemployment was reduced to an unspecified level. This looks set to push the US dollar even lower against currencies that aren't printing money.
After the announcement the kiwi rose to a six-month high of over US83c, despite commodity prices being 11 per cent below where they were six months ago. It has also risen to almost A79c in the past week as signs emerge of a slowing Australian economy.
Economists now expect the Reserve Bank of Australia will cut its interest rates next year while our rates remain on hold until late next year, when they are expected to start rising. This would put even more upwards pressure on our currency measure, the trade-weighted index (TWI), which is also near a one-year high.
The world's other central banks are also stimulating and devaluing in an unlimited fashion. This month the European Central Bank unveiled its programme of unlimited bond-buying, the "Big Bazooka" many had been hoping for to stimulate the eurozone economy. This, too, is devaluing the euro versus the NZ dollar, which has strengthened 64 per cent against the euro since March 2009. No wonder new BMWs and Audis seem cheap compared with Holdens.
