Mother of all carry trades

I am NOT an economist, I do however have some dealings with foreign exchange, I export – apples.

I, like many other people, have been trying to figure out just how high this dollar is going to go, at its present rate business is not sustainable, that’s all there is to it. So in my search for what is probably the financial equivalent of the holy grail I have been doing a bit of reading.

Bernard Hickey’s Blog Show Me the Money spoke volumes to me. 

I knew that the Japanese housewife had a significant interest in the New Zealand dollar through Uridashi bonds.  They use a small of their equity to borrow large amounts of money and then they invest it in NZ.  They pay next to no interest on their borrowings and get lots on their investment 🙂 Lucky them.

However what it does do is push up our dollar, espicially when other countries, such as the US of A reduce their interest rate.  Just have a look at what the recent reduction, by half a percent, in interest rates did to the dollar.

National Bank Graphs

Hickey reported that Mark Weldon of NZX fame stated that the Reserve Bank has created the mother of all carry trades and I have to agree with him.  There was some speculation that monies would have to be repatriated to their own countries to shore up some dodgy sub-prime deals but that doesn’t seem to be the case 😦

For what it’s worth, my pick is that this dollar ain’t going down anytime soon…


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