Saturday, September 22, 2012

New Zealanders Threaten Competitive Currency Devaluation

Count on silly politicians somewhere to argue for the wrong way to promote exports.  Some New Zealand politico wants to force that country's central bank to devalue the New Zealand dollar.  Cooler heads are likely to prevail through simple political strength and solid arguments that the Swiss haven't been able to hold their currency down.  The risk for currency investors is that these pro-stimulus sentiments can catch on among people desperate to revive economic growth.

New Zealand is doing the right thing by maintaining a normal interest rate policy.  Central bank intervention destroys a currency in the long run.  Proof will come in a year or two when the euro will have dissolved and the dollar will have begun its own devaluation.

Full disclosure:  No position in the New Zealand dollar, although I am considering buying some as a hedge against the U.S. dollar.