The New Zealand Dollar has weakened against a basket of currencies after Finance Minister Bill English said that the currency was overvalued and there is little the government can do to lower it.
His comments aren’t exactly true as is seen all of the time in the currency markets any negative talk about a currency by politicians often causes said currency to weaken. The currency has climbed by 12% during the past two years as according to English the currency has been bolstered mostly by quantitative easing measures.
“We expect there may be a correction in valuation with the exchange rate when the US economy is clearly picking up, and there are signs of that now,” Said English when addressing reporters in Hong Kong.
The finance minister’s comments are similar to those spoken by the International Monetary Fund which estimates that the Oceanic currency is overvalued by as much as 15%. They added that they expect the currency’s value to remain elevated as long as loose monetary conditions exist around the world. Most nations are currently undertaking measures to weaken their currencies in an attempt to boost exports.
The IMF’s Bruce Aitken also warned against the New Zealand government tinkering with the currency’s value saying, “We strongly feel the framework for monetary policy, including a flexible exchange rate has been one of the reasons New Zealand is in a relatively resilient position, compared with some other countries. Do you want to mess with the framework because the exchange rate at the moment is overvalued, and do potentially long-term damage?”
As well as the finance minister’s speech the currency was also weighed down by the ongoing drought affecting the country’s north island and by a decline in demand for commodity based currencies as a result of the Cyprus bailout scare.
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