David Roberts

The Kiwi conundrum

David Roberts


The Kiwi is a small, flightless bird as well as the nickname for the New Zealand Dollar, which plunged overnight and caused markets to take flight.

Here, in microcosm, is the challenge we now face: this week, the country saw unemployment fall to an 11-year low, wage growth surge and inflation accelerate to 1.7% and yet the Reserve Bank of New Zealand cut interest rates half a percentage point to 1%, an all-time record low, citing potential problems ‘overseas’.

Quickly, the currency fell more than 2%, just as the US formally labelled China a currency manipulator. Surely to goodness we haven’t come to this? In the decade post financial crisis, central banks and governments around the globe worked together to strengthen the system and promote international economic activity; that period of working for the common good appears to be over.

Economic data generally remains robust and until recently, I was quite constructive, with New Zealand a case in point. However, we seem to be entering an era of ‘beggar thy neighbour’ competitive exchange rate devaluation, hidden behind talks of ‘insurance cuts’ and ‘potential trouble overseas’.

I continue to blame the European Central Bank, quantitative easing (QE), negative rates and so on for sparking this monetary policy arms race. Such policies are forcing retaliation and, in my view, have boosted support for populist politics and protectionist trade policy.

QE and negative rates: a decade-long experiment but we forgot about the Law of Unintended Consequence.

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Key Risks

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Wednesday, August 7, 2019, 2:29 PM