House Prices

Ask the analyst: Riding the dollar

Why is the Kiwi dollar so high against the US dollar? What investment strategy should I be taking to benefit from this position?

Tuesday, March 23rd 2004

The New Zealand dollar has risen by around 25% against the US dollar since the beginning of 2000 — a blow for ­investors with exposure to offshore investments.

Reasons for the rise of the New Zealand dollar against the US dollar are varied. First, the US dollar has been allowed to weaken against all currencies in the world over recent periods to help certain sectors of the US economy, in particular US exporters. Second, it should be remembered that the New Zealand dollar behaves like any rationally priced good — if there is an increase in demand for it, the price (or exchange rate) appreciates. The increase in demand for our dollar has been caused by New Zealand interest rates being relatively high compared to other countries, which has attracted foreign investment into Government Bonds. There has also been a strong level of migration into New Zealand over the last few years, further increasing demand for our dollar.

If you take the view that the New Zealand dollar will weaken over time against the US dollar, there are capital gains on the currency movement to be made by investing into US dollar domiciled investments. Once global interest rates rise, New Zealand will not appear as such an attractive proposition for investment of overseas monies. We have a large balance of payments deficit, the economy is very reliant on the agricultural sector and we are indebted to most countries in the OECD.

Options to take advantage of the potential downturn would be based on an individual’s tolerance to risk and timeframe. For instance a conservative investor could place money in US Treasury Bonds and receive a half-yearly interest payment while making a potential capital gain if the New Zealand dollar declines against the greenback over the life of the bond.

Read More - Opens in a new window
Heartland Bank - Online 6.69
SBS FirstHome Combo 6.74
Wairarapa Building Society 6.95
Unity 6.99
Co-operative Bank - First Home Special 7.04
ICBC 7.05
China Construction Bank 7.09
BNZ - Classic 7.24
ASB Bank 7.24
ANZ Special 7.24
TSB Special 7.24
Unity First Home Buyer special 6.45
Heartland Bank - Online 6.45
China Construction Bank 6.75
TSB Special 6.75
ICBC 6.75
ANZ Special 6.79
ASB Bank 6.79
AIA - Go Home Loans 6.79
Kiwibank Special 6.79
BNZ - Classic 6.79
Unity 6.79
Westpac Special 6.39
China Construction Bank 6.40
ICBC 6.49
SBS Bank Special 6.55
Kiwibank Special 6.55
BNZ - Classic 6.55
Co-operative Bank - Owner Occ 6.55
ASB Bank 6.55
AIA - Go Home Loans 6.55
TSB Special 6.59
Kainga Ora 6.99
SBS FirstHome Combo 6.19
AIA - Back My Build 6.19
ANZ Blueprint to Build 7.39
Credit Union Auckland 7.70
ICBC 7.85
Heartland Bank - Online 7.99
Pepper Money Essential 8.29
Co-operative Bank - Owner Occ 8.40
Co-operative Bank - Standard 8.40
First Credit Union Standard 8.50
Kiwibank 8.50

More Stories

Support for regulation

Monday, March 18th 2024

Support for regulation

REINZ has emphasised the need for property management regulation to Parliament’s Social Services and Community Committee.

A better investment market

Thursday, March 14th 2024

A better investment market

“Reinstatement of interest deductibility starting from the new tax year on 1 April brings property investors back in line with every other business in the country, where interest costs are a legitimate deductible expense," Tim Horsbrugh, New Zealand Property Investors Federation (NZPIF) executive committee member says.

[OPINION] Recessionary times

Thursday, March 14th 2024

[OPINION] Recessionary times

It is not the best out there for many businesses and property sector people. Sales are down across the board, our clients’ confidence is falling, and there is a lot of uncertainty.

Interest rate expectations: It’s not over yet

Thursday, March 07th 2024

Interest rate expectations: It’s not over yet

Most Kiwis think interest rate increases have peaked.