Oh no. NZD falls against the USD. The last time this happened…

Oh no. NZD falls against the USD. The last time this happened was in 2008 and 2015.

 

Back in August-September 2008, the NZD also fell against the USD. In fact it didn’t stop at 1 NZD to 0.65 USD, it went all the way down to 1 NZD to 0.5 USD. Back then, it was Labour’s last few months in government before John Key and his National party came into power. 2008 was the start of the global financial crisis (GFC) and subprime mortgage crisis. While NZ didn’t have a widespread subprime mortgage problem, the property market took a hit and the property cycle was in a downturn.

As recently as September 2015, the NZD touched 1 NZD to 0.65 USD. Again during this time, the property market slowed down (although that was to do with the introduction of the Bright Line Test).

So what does the recent drop in NZD signal? Slowing business confidence in NZ economy but also signs of a global economic slowdown. Recession might be a bit exaggerated at this point but definitely its an economic slowdown. One thing for sure, is the declining NZD means investors are losing confidence in the NZD currency. This is not surprising given that the Reserve Bank of NZ chose to keep the interest rates unchanged while the US has increased their Fed Rate. Obviously interest rates are at an all time low so at some point it will have to increase. The question is when?

Aside from when interest rates are going to rise. What does the falling NZD mean for property? If we believe historicalĀ correlations, property has had its day and the property boom is over. It will be a good 4 or 5 few years before we see any real growth in real estate prices. So invest wisely and have a buffer in case the economy gets worse. Always better to be conservative when you have something to lose and bet the bank when you have nothing to lose.

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