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NZ dollar vs US dollar
Good profit results this week from leading American multi-nationals like Apple and chip maker Intel serve as a reminder as to why the US dollar is so weak at the moment and the Kiwi dollar is so strong.
A weak greenback is of course a major advantage to US exporters as it significantly boosts their returns.
The US government - still actively printing money to help deal with its deficit - is therefore happy to see the greenback weaken.
In fact many would argue it's running a deliberate strategy of weakening its currency so it boost exports which will help fix its economy.
Damn! I hear you say, isn't that what we in New Zealand are supposed to be doing with our exporters? An export led recovery and all that.
Yes indeed, it is in fact a strategy many countries around the world would like to pursue.
The problem is that not everyone can have a weak currency and this is a game where the biggest fish is going to win.
And for the time being the US, despite a massive deficit and near double digit unemployment, is still the strongest economic force on the planet.
That's not to say a strategy of a weak US currency isn't ruffling feathers. It is.
There is now huge debate and criticism both in the US and around the world about the US dollar's fate.
In particular about whether the US dollar can hold its position as the world's reserve currency.
Bloomberg recently reported that many central banks are now snubbing the US dollar and are choosing to hold a far greater percentage of Euro and Yen and in their reserves.
While British journalist Robert Fisk shook things up recently with a story claiming some oil producing countries were looking at dumping the US dollar as their preferred trading currency, in favour of a basket of other currencies.
The big risk to the US from a weak US currency is that the world gets fed up and stops lending it the money it needs to fund its deficit.
At this point there is no indication that will happen.
For the time being the world still seems happy to give the US the breathing space it needs to sort out its troubled economy.
The pay-off being that a resurgent US will benefit everyone eventually.
The problem for the New Zealand economy is that Kiwi dollar has become one of the most popular alternatives to the US currency at the moment.
Investors it seems, look at New Zealand in conjunction with Australia and see two economies that have escaped the recession better than most.
They see two commodity exporting countries that stand to benefit from a strong China, which is growing at 8.9% and they are convinced New Zealand - whether we want to or not - is going to have to follow Australia soon and hike interest rates to ward off rising inflation.
Higher interest rates will then attract more foreign capital - pushing the currency up further and on and on it goes.
All this is of course little comfort to our exporters who are now again facing the prospect of having to live with a dollar at 80 cents US.
However until the US dollar rebounds - whenever that might be - there is little relief likely.
Our policy makers have made it clear that while they think the dollar is over valued, they are not going to act.
Still there are some pluses with oil at 80 dollars US a barrel, the high Kiwi is at least making life for motorists at the pump a lot less painful than it could be.
