It appears that my call for farmers to invest in currency isn’t such a popular idea. In fact, such speculation is claimed to be the problem in the first place.
Some commentators and even financial brokerage firms are saying the Government must step in and stop speculation around the NZD – amidst forecasts we could see it rise to 80 cents against the US.
The call is to step in and save farming from speculators creaming profits from exchange rate movements.
Whingeing of the type I have read from pundits is sometimes laughable. Example: Here is a quote from Fuhrman and Co managing director Peter Christensen, in a story my buddy Colin Williscroft wrote on the Rural News website: “since mid-March the kiwi dollar has gone up 46% and seriously undermined gains that should have ended up in farmers’ pockets”. He elaborates by saying speculators were creaming profits that should be going to farmers.
That is far too simplistic an argument – at the risk of creating a strawman counter-argument, it seems the implication is that the NZD wouldn’t be rising if it weren’t for a handful of market pirates seizing upon exchange rate movements.
For one, how could you possibly accuse one group of taking from some other group? This is not how free markets work. When times are good exporters, times aren’t so great for importers. And vice versa. A cogent argument could be made to say the highs and lows in either direction are more pronounced thanks to speculators. Arguing that someone is taking the money from someone else in a free market is nonsensical.
I said in a previous column that if the exchange rate is against you, as clearly it is for farmers right now, then you might as well ride the wave. One of the most valuable things that you can hold right now that will hedge you against high exchange rates is foreign currency. Specifically the US and the pound – both of which are at spectacular highs for recent years.
This has a double effect too – buying foreign currency helps alleviate the high demand for the NZD. This simple supply and demand analysis may seem overly simplistic. That’s true, although this is the basis of all markets.
I don’t support the Government tampering with the exchange rate. We’ve done this before and it took a lot of pain to correct. The fourth Labour Government under David Lange had to devalue the dollar 20% shortly after taking office in 1984 because Muldoon’s meddling had led to a massive imbalance in our economy.
Legislation is unnecessary here. Supply and demand will correct this and yes, some people will make money. My question is, why not be the one making the money? While exporting is clearly not the business to be in right now, there are alternatives to this that one can take with a little advice and direction.
I am not a financial advisor, so I do stress the need for independent help on these matters should you need it.
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