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Sep 22, 2005


t selwyn

Good post. I have an analysis at TUMEKE focussed on the currency subject if you're interested.

I just take issue with your last comment about Treasury bonds. But I'm not sure I follow you entirely:-
"Cullen needs to take the NZ government out of the market for surplus NZD.  The FX market will fall if this happens.  It would happen quicker if he started issuing Treasury bonds.  More NZD around, lower price."

If off-shore buys these NZD bonds then that will have created a demand for them as our high interest rates and top credit rating make them very attractive. This tends to hold the dollar up. BUT: If they are low-yield and are of a significant amount then you are probably correct.

I have said in my post that the RBNZ policies of stability in fact and necessarily tend to keep the dollar too high. There is a tension here between Treasury (fiscal) and RBNZ (monetary) policies.


correct - if they offer a good yield and international money thinks the currency strength will hold. With awareness of a policy change any high yield would be offset by poor forward cover.

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