British Expats - New Zealand Dollar Update

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New Zealand Dollar Update

As per my update on the Australian Dollar, again you might find this useful:

The Kiwi Dollar finished the month where it started, around the 2.70 level, but that is not to say that it has not been volatile throughout the month! In fact, there has been over a 16 cent difference between the high (2.7750) and the low (2.61), once again indicating that the effects of the credit crunch are being felt and that the NZD’s fate is heavily influenced by equity markets and risk appetite.

Risks to the economy remain finely balanced and, after CPI figures came out at 0.5% (the lowest figures in 3 years), the RBNZ left their interest rates on hold at 8.25%. Potential inflationary pressures from strong commodity prices and a tightening labour market were cited, but there are also signs that the housing market appears to be moderating.

It is also worth reiterating why the market moved so much in August. Simply put, the sub-prime mortgage lending crisis in the US (which filtered through to the UK with the much publicised Northern Rock issue), caused massive uncertainty in the equity and money markets. Investors got scared, took their profits from the carry-trades, and there was a big sell off of the New Zealand dollar, hence the moves up to 2.97. Once the initial impact of the sub-primes had been felt, investors came back into the market and started buying these dollars again, (with the high interest rates offering very attractive gains) thus strengthening the NZD and moving it back to the mid 2.60’s – 2.70 levels we are seeing now.

It is very hard to predict where the market is going from here - we haven’t as yet seen a move back down to the July ’07 lows of 2.54, but some analysts believe we are in a period of correction or consolidation, and the longer terms risks are for more downward movement in the months ahead. The question is how low can it go? The simple answer is nobody can predict these moves, but there are steps you can take to protect yourself against these currency fluctuations and eliminate the risk of the markets moving against you. When migrating, it is paramount to ensure you are aware of these market movements and any significant trends developing, because the transfer of your funds from £ to $NZD will have a massive impact on your future wealth.

The most important thing is to gain an understanding of what this means to you; if you were taking £200,000, and moved your money on the 23rd July, you would have got just around $508,000 NZD. Less than 2 months later, on 10th September, the same £200,000 would have bought over $594,000, which is a staggering $86,000 more!!

So how can you protect yourselves against such volatility? Nobody has a crystal ball, but if you have funds available to you then you can fix a rate of exchange with just a 10% deposit. You then set a date for up to 2 years in the future to send the remainder of your funds, which are all paid at the pre agreed rate of exchange. This is known as a forward contract, or a buy now, pay later option, and eliminates any risk of the market moving against you and means that you know exactly how many Kiwi Dollars you will have to start your new life abroad. It can be done for all, or a portion of your funds, depending on what you have available to you.

Should you be in the fortunate position to have all or the majority of your funds available to you, then you can always buy your NZD on a spot contract, or buy now, pay now basis. As it sounds, you buy your currency now, and pay for it now, and we will then send your funds to an account of your choice in New Zealand (if you do not have an account set up then we can assist with this as well). Again you have peace of mind in the knowledge that you are protecting yourself against any currency fluctuations, but you are also taking advantage of the high interest rates down in NZ.

Many people will think about leaving their funds in the UK, as they may be renting 12 months. However, 12 months ago it was around 2.90, so the question you need to ask yourselves is what risk am I willing to take, or how much can I afford to lose?

There is no right or wrong answer, it is a very personal decision and only you can answer it. If you are a gambler and can afford to take the risk of the market moving against you, then you may decide to wait. If you want to know how many dollars you will have and how much your house in New Zealand will cost you, then you may decide to take the steps to protect yourself against these movements. Whatever the outcome, the most important thing is to start following the markets and speaking to the experts. Whether you are a week, a month, or a year from emigrating, forward planning will make your move a lot easier and more stress-free.

Cheers,

Richard.