NZD > AUD could be a short term outcome of the finsec crisis -- providing very low CARRY TRADES

[billstew]

NZD > AUD could be a short term outcome of the global finsec crisis -- providing very low CARRY TRADES.

In any case, the global finsec crisis will upset a lot of traditional currency relationships.

Theoretically AUD > CAD if the finsec crisis goes bad for Canada more than Australia.

Many of the forex trading pair reversals may take 20 years to flip back to their original states -- and some may be nearly permanent [lasting 50 years].

The FOREX market will be in for some interesting times, and a lot of people will lose money learning the new currency relationships.

[Down Under]

NZD > AUD could be a short term outcome of the global finsec crisis -- providing very low CARRY TRADES.

The FOREX market will be in for some interesting times, and a lot of people will lose money learning the new currency relationships.

Do you have any basis for NZ > AUD? Not saying it can't happen, just wondering why you've said it.

But, definitely the forex market is in for some interesting times. Clearly, the swings in the forex markets will play havoc with a lot of trade.

[Louie.G]

Do you have any basis for NZ > AUD? Not saying it can't happen, just wondering why you've said it.

But, definitely the forex market is in for some interesting times. Clearly, the swings in the forex markets will play havoc with a lot of trade.

Cause NZ has an ex Merrill man running the country. If he can't sort it, then no one can. :D

Had some export deals last week. Buy in USD, sell in USD, GBP, AUD and NZD. Profit was by 1% of gross sales value in 2 hours. Mostly all gone the next morning. That's not as bad as it was last year when I lost all the profit plus some on an export order over night and it never returned. :eek:

What does it say when profit margins can move that much in hours, just via currency rate changes. I would call it volatile

[Down Under]

What does it say when profit margins can move that much in hours, just via currency rate changes. I would call it volatile

I watch the AUD closely and, at times, the volatility is amazing. It must play havoc with trying to run a business.

[billstew]

I watch the AUD closely and, at times, the volatility is amazing. It must play havoc with trying to run a business.

The volatility forcing functions of the CAD and the AUD are probably tightly coupled [or at least highly similar] if you look in the window 1989-Present. Fixed exchange rates ended in the 1970s and 1980s for both as part of the Bretton Woods system collapsing.

Since 2000 the CAD has gone from ~0.60 US to ~1.025 USD and is now hovering in the ~0.81 USD range.

The AUD has had a similar related range with some temporal sychronisity with the CAD. Yes, in a matter of speaking the AUD almost reached true parity with the USD.

Were it not for the 7 year NSW / VIC / QLD drought the AUD would have held parity with the CAD for some time and reached and held parity with the USD for some time.

Australia and Canada are classical trading nations, and both have large natural resource based economic sectors. The NZD, from this point of view is perhaps harder to quantify, in spite of NZ being somewhere 'in between' Canada and Australia with respect to its global trading patterns. People often forget that Canada is perhaps more tied to Asia than to Europe with its trade ... but this is not true across all sectors.

Because the NZD [in the FOREX domain] has evolved some weird coupling and decoupling effects with the world's 5 (or 10) major currencies -- it could become worth more than the AUD out of sheer volatility.

Global economic meltdowns (save the Great Depression) have affected NZ very unevenly -- and who is to say that Australia is totally devoid of structural problems that would typically severely devalue the AUD...

[The Outback Oracle]

IF the Global Financial crunch continues and perhaps tightens a bit further, you are about to get a very clear demonstration of ALL Austrlaia's structural problems!!!

The possibility that Australia faces a funding crisis of unsolveable proportions is very real. There are but a few who are willing to publicly mention this as it seems to have become the great unmentionable. I think they are all afraid if the public realises what has been done to this country over the last 50 years, that the pitchforks and ropes are going to come out. I have just had a new insight into why John Howard took away the guns!!!
The possibility of the funding crisis is only mentioned by the likes of Keen, Minack, Michael West, and....ummmmmm and ummmmmmmm oh yes...me :)

[Down Under]

Because the NZD [in the FOREX domain] has evolved some weird coupling and decoupling effects with the world's 5 (or 10) major currencies -- it could become worth more than the AUD out of sheer volatility.

Global economic meltdowns (save the Great Depression) have affected NZ very unevenly -- and who is to say that Australia is totally devoid of structural problems that would typically severely devalue the AUD...

Yes, it will be interesting to see how things play out in Oz. Talking to a mate of mine the other day, and I asked him why he thought we hadn't been hit hard, as yet.

Our stock market is down similar percentage to the rest, and housing has slowed, but apart from that, it all still appears okay here.

A comment he made, not sure how accurate but made sense to me, was that because we export a lot of commodities, and those contracts were longer term and locked in, may not be until the second half of this year that things will start to bite here.

When the AUD fell off a cliff last year, it sure was a wake up call to me. Question remains, how much further will it fall?

[nedtheguy]

Yes, it will be interesting to see how things play out in Oz. Talking to a mate of mine the other day, and I asked him why he thought we hadn't been hit hard, as yet.

Our stock market is down similar percentage to the rest, and housing has slowed, but apart from that, it all still appears okay here.

A comment he made, not sure how accurate but made sense to me, was that because we export a lot of commodities, and those contracts were longer term and locked in, may not be until the second half of this year that things will start to bite here.

When the AUD fell off a cliff last year, it sure was a wake up call to me. Question remains, how much further will it fall?

From this article:
http://newmatilda.com/2009/03/09/footing-bill-howard-years

"Commodity prices in general have been falling back to earth, and for coal and iron ore they'll hit the ground this April. Australia's producers are currently negotiating with China over the contracts that will set the prices for these two commodities for the year beginning 1 April.

...

Australian negotiators know they're going to take a hit. The standard prediction, depending on who you ask, is that the contract prices will fall between 30 per cent (according to Goldman Sachs) and 50 per cent (Access Economics). That is huge — equating to a fall in GDP of around 3.8 per cent (although it's not terminal, and should be seen in the context of the unusually high prices we had been enjoying during the boom).

When these new prices are announced, expect the dollar to go through the floor (probably a good thing overall) and the commentariat to start hyperventilating."

[Down Under]

http://newmatilda.com/2009/03/09/footing-bill-howard-years


Thanks for the link

[The Outback Oracle]

The problem is Foreign debt. We have sold off all our Mineral resources. My own numbers were about 80% and The Mayne Report, on a company by company analysis indicated 80%. More importantly, we have a Foreign Debt of $800 Billion which has to be financed along with our Current Account deficit. If world financial conditions tighten a little further we will not be able to refinance our foreign Debt which will lead to EJ's 'Sudden Stop'. The truth of our precarious position is never told so the public are generally ignorant of the situation. Neverhteless it looks to me a distinct possibility as the year wears on.

AQs to the present situation, the economy is sinking faster than the politicians and those in high powered positions realise. I have a mate who tours building sites sharpening saws (chisels etc) etc...his business is falling off a cliff. He's OK with it as we are of an age he wants to ease off. Nevertheless as an "on the ground" indicator he is as good as it gets.

[Down Under]

More importantly, we have a Foreign Debt of $800 Billion which has to be financed along with our Current Account deficit. If world financial conditions tighten a little further we will not be able to refinance our foreign Debt which will lead to EJ's 'Sudden Stop'. The truth of our precarious position is never told so the public are generally ignorant of the situation. Neverhteless it looks to me a distinct possibility as the year wears on.



So, the $800 billion, that has been borrowed, has been done by our banks in the wholesale markets, and some percentage of that has to be rolled over annually, I would assume. So, the issue is, that at some stage if the worldwide situation worsens, our banks will not be able to roll over these loans.

So, at that stage, our dollar collapses? Along with a high rate of unemployment; do you think we will be better or worse off than the US?

[Aussie]

So, the $800 billion, that has been borrowed, has been done by our banks in the wholesale markets, and some percentage of that has to be rolled over annually, I would assume. So, the issue is, that at some stage if the worldwide situation worsens, our banks will not be able to roll over these loans.

So, at that stage, our dollar collapses? Along with a high rate of unemployment; do you think we will be better or worse off than the US?

Didn't KRudd say the Australian government would not stand by and let Australian businesses run out of funds . . ?

I guess that could only mean some kind of gov't funding (borrowing/printing) scheme, more gov't control and accountability ie:a bigger big brother, a reduction in the standard of living along with further mortgaging of the grandkids future and a significantly lower dollar.

I may be being overly pessimistic but it doesn't sound like the future of a "lucky country" to me . . .

[The Outback Oracle]

Aussie...every A$ he prints will make our situation worse as there is a very high leakage into the external account exacerbating our already disastrous Current Accout Deficit and International debt. In addition printing would destroy whatever credibility the $A might still have at that stage. So the $A is not now generally accepted as an International medium of exchange. When he prints the A$ will be untouchable. Rudd cannot print a currency that would be accepted internationally. The big danger to Aus is in the external account. We can sell off a few more mines to the Chinese, let's say we might raise a couple of hundred billion by selling what we still own. After that we are totalled!

[nedtheguy]

If world financial conditions tighten a little further we will not be able to refinance our foreign Debt which will lead to EJ's 'Sudden Stop'. The truth of our precarious position is never told so the public are generally ignorant of the situation. Neverhteless it looks to me a distinct possibility as the year wears on.

I got this feeling a few weeks ago (why did it take this long?) that I should really be converting a serious portion of my Aussie Dollar savings into inflation hedges (gold, oil, things?) to cover my future salary (assuming I retain my job over the next couple of years, heh). I think it was the realization that the Australian dollar isn't actually a reserve currency or a medium of exchange, like you say in your post below, Oracle. Worst case, I keep working and my salary goes up in real terms.

So, looking at EJ's Sudden Stop post: http://www.itulip.com/forums/showthread.php?t=5403 what stage do you think we might be in? I'm thinking somewhere around 2 maybe 3 right now. The one thing that bugs me still is housing, especially in the capital cities. Prices are starting to come down, but the government is throwing money to prop it up, and the media doing all they can to help keep the illusion out there that it's "safe as houses". Meanwhile, I see this: http://www.demographia.com/dhi.pdf (page 12) and wonder how people can keep buying? Sydney median prices over 8 times median income. Nevertheless people (including a few friends) are jumping on the First Home Buyer's Grant and buying property and there is still the mentality that this dip in prices means it's a great time to buy, especially with interest rates as low as they are. So, what happens with an overvalued real estate market that needs to deflate happening in a country without a reserve currency? In the US there was a flight to Treasuries after a dual stock/house market crash. I don't think Australia has that option and I get to feeling that if the economy gets hit hard, the policy will be to inflate out of debt and the currency will get hammered. Iceland Down Under? Should we be watching what happens to the UK as a barometer?

I've been reading Steve Keen's website and he has a lot of good info (thanks iTulip). Related to the economy, I'm a mad rugby union supporter and have been blown away by how small the crowds I have seen in the Super 14 matches thus far, even just by watching TV. I wasn't surprised when this article came out: http://www.rugbyheaven.com.au/news/news/monday-maul/2009/03/01/1235842248419.html

Of course, NSW Rugby saw fit to raise their prices again...

[The Outback Oracle]

Ned I thought there was hope for you there for a minute and then you turn out to be a Waratah????:eek:

You are better at this place than I am or your memory is bettter being able to retrieve the articles. Maybe we Reds are just backward. I'll re-read Sudden Stop and get back to you.However, I'll make this initial commnet. I think if you've watched Wayne Swan over the last 9 months, he has had a desperation in his eyes. He has a nightmare playing out in his brain. They keep saying our Banks are sound and that they are not involved in the USA Derivatives/sub-prime crisis. If they are so sound, why then did the RBA have to pump in $2.35B between October 2007 and April 2008? Further, it is clear that the Banks are so leveraged to the Real Estate sector, that a small decline will be a catastorphe. In IMO all the Banks will be insolvent once it blows. I know of Hedge Funds that are betting on just that scenario.
It is not too clear how much the Government is signing us up for for loans to the Commercial Real Estate industry. However again it is clear they are DESPERATE not to let Commercial real estate values fall. Again one has to ask opneself why? Answer because if it does these Banks are going under. I remember back in time some 12 or 18 months seeing figures on Leverage levels for the Banks. I remember thinking if the Real Estate market falls (from memory) 7% these Banks will have no Capital left.( Now just keep in mind this is just me putting together numbers at home.) In the meantime Banks have been very busy shoring up Balance Sheets with Capital raisings of various kinds. I don't know how much the RBA has stumped up in REPOS since last April. The First Home owners grant was never designed to help First Home Buyers. Michael Matusak was on ABC Radio saying that it had been built into the Selling Prices. The whole thing is designed to keep the RE bubble inflated so the Banks will survive.

Now having said all that, a few weeks ago, I read a Treasury Note indicating that the Banks, with the help of the Government Guarantee, had managed to secure their Foreign Funding for the next six months.
On the other hand there is a litttle matter of (apparently) $14T wortth of derivatives that noone is too sure exactly what they are. If they are currency hedges etc that are ppart of normal trading then that is one thing, and perhaos a good thing. On the other hand if they are gambling on whatever we are in a lot of trouble.

Now specifically to your questions and they are good ones that set my mind running in more concrete terms than just waffling around.

Where are we in Sudden Stop??? First thing is to make sure that we are thinking like the public in general rather than our own specific programne (having read Keen itulip etc). So I think you are correct we are at 2-3. IMO more still in 2 as far as the public are concerned. We are still fiddling and arguing whether we are in a Recession because we had a -0.5% GDP growth Q4 2008!!!! Hells bells!!!!! These numbers are all so far behind what is actually happening it is not funny.
If we are in 2 the real question is how fast will it develop from here? I guess i'm a pessimist and i am thinking very quickly. However I have been known to be wrong on timing and i underestimate the tendency of the psychopaths who rule us to obfuscate and lie. Maybe I am underestimating how quickly and how much of what remains of our Mining resources we can sell off to the Chinese. One thing that really bothers me however is the reversal of the Japanese Current Account into deficit. The Japanese have been big funders of our profligate ways. Perhaps in the near future this flow of funds is not only going to stop but go into reverse! Throw in other outliers, like European Banking situation, and you have a recipe for even an overnight disaster. So I'm thinking a steady steepening decline for say the next 6 to 9 months with a big hit to deal a death blow sometime in the next 12 to 15 months. These are just pulling figures from nowhere to a large extent.

With respect to inflating our debts away, because we are not the Reserve currency, we cannot do this. Inflation just makes the debts worse. Having said that, a few years ago much of our Foreign debt was with Japan and written in Australian dollars. I'm not sure to what extent this is still true. One thing you can bet on, they won't be accepting Australian dollar paper in the near future after getting a 40% haircut on their Princilpal in the last 6 or 7 months.

We are better off than the UK I think. We still have resources we can sell off!!! Further, even if the resources are all Foreign owned we would still provide labour to dig them up. I can't see the UK has anything going for it at this stage. We still have bounteous resources that, although we have squandered our heritage to a large extent, will give us some worth for the next few decades. Don't get me wrong, I don't think it will be enough to offset the overall economic decline.
As to Aussie's question will we be better off than the US. I don't think so. As EJ often points out the fact that the USD is the Reserve currency allows them a lot of advantages we don't have. In addition I think the US still has a fair industrial base on which to build. Ours looks virtually non-existent from where I sit. Further I suspect we are more over-Governed than the US. This factor will be telling as Governments at all levels in Austrlaia run out of money.

Your observations on Rugby crowds is a good one. I live on the Sunshine Coast and have not been to a game yet. We have only had the one home game so far. On the Coast here it is just beginning to hit. I would say, up till now, there has been little sign of Recession. However, the Coast depends very heavily on "Tradies" working in the building industry both on the Coast here and in Brisbane. It is only the past few weeks that unemployment has really started to hit this sector. So I expect the decline on the Coast here to accelerate fairly rapidly.
I'm still waiting for all the margin Borrowers in Sydney to have to sell their Sunshine Coast units. I guess up till now, there is a perception that this is their one store of value and with interest rates going down, they have been able to 'hang in'

[billstew]

Many Canadian banks (but not credit unions as far as I know) allow one to have a USD account; AUS Banks: NIL, NZ Banks: NIL

Canada has about as many major banks as Australia, but it has quite a few more at the provincial level that Australia does not.

Not that having USD or EUR ancillary bank accounts would help most people, but it would saturate the Australasian finance sector with USD and EUR.

I am not saying that this is a solution that should be adopted, but this tiny aspect of the Canadian banking system may help the Canadian economy indirectly.

My major beef with Australian and NZ banks:
Their address systems cannot even cope with US or Canadian postcodes...

[Sharky]

Many Canadian banks (but not credit unions as far as I know) allow one to have a USD account; AUS Banks: NIL, NZ Banks: NIL

Not sure what you mean by that. My bank in NZ lets me have both AUD and USD accounts.

My major beef with Australian and NZ banks: Their address systems cannot even cope with US or Canadian postcodes...

I don't understand that, either. I get mail to and from the US and Canada all the time, no problem. Wiring money back and forth is very easy, too.

[Aussie]

. . . it is clear that the Banks are so leveraged to the Real Estate sector, that a small decline will be a catastrophe. In IMO all the Banks will be insolvent once it blows . . .

I'm an ANZ customer for day to day checking, but my near term savings account is at GoldMoney.com . . . so ANZ can go tits up and I couldn't care less.

[billstew]

Not sure what you mean by that. My bank in NZ lets me have both AUD and USD accounts.


What bank? I am interested...

I looked at NZ banks in 2001-2003 for features like USD or AUD accounts, but I did not see any trace of it. It may be new, post 2004.



ANZ-NZ does not seem to offer this feature, and it is the biggest NZ bank as far as I can tell.
I know Kiwi Bank does not do this, their ATM cards being useless in Australia in spite of the FTA (technically this is a violation of the FTA).
The NZ building societies don't off USD or AUD accounts as well.


Canadian banks typically offer USD accounts without any additional fees, but I suspect in Australasia that there is a fee attached to having an ancillary AUD or USD account.

Substantially large parts of the population in Australasia don't hold USD (or AUD) in their bank accounts as a default condition -- this assumption is not really true for [Southern] Canada.

[The Outback Oracle]

The forced sale of the heart of Australia continues just to pay for our day to day expenses. We have to keep seeling our resources just to pay for our excess spending and the interest on our debts.

http://business.smh.com.au/business/family-shuts-the-gate-on-cattle-properties-for-425m-20090313-8xvv.html

[billstew]

The problem is Foreign debt.

We have sold off all our Mineral resources. My own numbers were about 80% and The Mayne Report, on a company by company analysis indicated 80%. More importantly, we have a Foreign Debt of $800 Billion which has to be financed along with our Current Account deficit.

If world financial conditions tighten a little further we will not be able to refinance our foreign Debt which will lead to EJ's 'Sudden Stop'. The truth of our precarious position is never told so the public are generally ignorant of the situation. Nevertheless it looks to me a distinct possibility as the year wears on...

AQs to the present situation, the economy is sinking faster than the politicians and those in high powered positions realise.

The Australian & NZ economies are more than mineral extraction economies.

Agriculture plays a big part -- and it does not look like global demand will go down any time soon.

A foreign debt of 800 billion AUD sounds high, but having not read the Mayne Report ... it is hard for me to judge how bad that number really is. At least Australasians have savings in the bank -- vs the US.

I know one thing, tourism is not going to repay that 800 billion as it is all but dead (at least that is what I have heard).