David Chaplin: Are other banks keeping the Kiwi high?

Earlier this year Graeme Wheeler warned that the currency was on an unnatural high. Photo / Mark Mitchell

Like everyone else - excluding importers, those planning overseas trips and consumers of petroleum-based products - I'm praying for the NZ dollar to fall.

What does it think it's doing up there, in the currency stratosphere? Come back to Earth this instant or someone's going to get hurt.

Earlier this year Graeme Wheeler tried to talk the dollar down, warning in a speech that the currency was on an unnatural high: "We believe the exchange rate is significantly over-valued relative to what would be sustainable long term in the absence of sizeable increases in the terms of trade and productivity."

According to Bob Jones, however, we shouldn't worry about it as "... when imbalances occur between foreign income and expenditure our floating exchange rate automatically adjusts so that it ultimately comes out in the wash".

"Ultimately," Jones may be right, but the adverb, with its loosely-defined timescale, doesn't help those looking for guidance on when this logical currency adjustment will occur.

And if the global currency trade truly was an automatic economic justice-dispensing machine then perhaps the NZ dollar - given what Wheeler describes as our "declining productivity differentials" - should've eased off by now.

Clearly, other forces are at work. Primarily, as Wheeler says in his speech - and what should be obvious to all observers - the 'innovative' money-printing strategies (so-called 'quantitative easing') of the US, UK, Japan etc has distorted currency markets.

"This has pushed down the quantitative easing currencies and pushed up currencies like the NZ dollar," Wheeler says.

But the global central bank currency distortion may go even further than that.

While New Zealand's central bank "would like to see a lower exchange rate", according to a recent survey, other central bankers appear to be pushing the kiwi in the opposite direction.

The study, carried out by Central Banking Publications and the Royal Bank of Scotland, polled 60 central bankers who collectively managed currency reserves worth US$6.7 trillion.

The Financial Times, which also covered the story, put it like this:

"Central bankers, increasingly frustrated with ultra-low returns and the depreciation of the [US] dollar and the euro, have invested in currencies which until recently they would have avoided along with riskier, higher-yielding assets such as equities and lower-rated government bonds."

The central banks' favoured currencies are the Australian and Canadian dollars, which 80 per cent of those surveyed had already invested in or were thinking about it.

But the central bankers were also looking further afield for reserve parking spots:

"About half had, or were considering, branching out into the three Scandinavian currencies and the New Zealand dollar," the FT story says.