MIDDAY UPDATE: Kiwi soars as Fed prints even more money

By Paul McBeth

Dec. 13 (BusinessDesk) - The New Zealand dollar rose as high as 84.52 US cents after the US Federal Reserve decided to keep printing more money to revive a sluggish economic recovery and create jobs in a persistently dreary labour market.

The kiwi traded at 84.31 US cents at midday from 83.90 cents yesterday after the Fed said it will buy Treasuries outright at a pace of US$45 billion a month. The US central bank also pledged to keep interest rates between zero and 0.25 percent until the unemployment rate comes down to 6.5 percent and inflation expectations stay below 2.5 percent.

“What has really got the market going is the thresholds for the lower rate commitment,” said Imre Speizer, strategist at Westpac Banking Corp. If the jobless rate is slow to come down, rates would stay low for longer than the market expected.

NZ manufacturers 'muddling along'

Activity in New Zealand's manufacturing sector is "muddling along" having contracted last month as the nation's building industry gears up for a tonne of work in the pipeline next year.

The Bank of New Zealand-Business New Zealand performance of manufacturing index fell 1.5 points to 48.8 in November, where a reading below 50 indicates a contraction of activity, and a figure above 50 implies expansion. The headline figure has barely budged since June, hovering at or around the breakeven 50 mark.

The rebuild in Christchurch is seen as a looming boost to the sector, with construction firms champing at the bit as insurance money starts flooding into New Zealand and funding what's seen as a $30 billion plus job. At the same time, a resurgent property market bereft of housing supply is stoking building conditions in Auckland.

Manufacturers have been vocal in their pleas for government aid as they struggle with a strong New Zealand dollar that eats into their profitability when selling abroad, while at the same time making their wares seem less attractive in comparison to cheaper imports.

Cheaper veges drag down food prices in November

New Zealand food prices fell for the third straight month in November, driven by seasonally low prices for vegetables such as tomatoes, broccoli and lettuce. Meat prices also fell.

The food price index fell 0.8 percent last month, for an annual decline of 0.6 percent, according to Statistics New Zealand. Prices of vegetables dropped 11 percent while fruit rose by 5.4 percent on seasonal increases for apples, nectarines and potatoes.
Prices of fruit and vegetables are up 7.9 percent in the year, as kumara surged 98 percent to the highest level since the survey began in 1999. Avocadoes were up 92 percent, pumpkin gained 108 percent, while apples rose by about a fifth in the year and tomatoes gained 14 percent.

Trans-Tasman tax credits need sorting, Productivity Commissions say

The New Zealand and Australian governments should settle once and for all the long-running argument over the tax treatment of imputation credits, which currently penalises trans-Tasman investors, says a new report from the two country's productivity commissions.

The commissions suggest such a move could cost Australia as much as $1 billion a year in lost tax revenue and New Zealand as much as $220 million, while delivering a boost to economic growth that could be worth up to $US300 million a year.

The growth boost would disproportionately benefit New Zealand, which would gain around $196 million of new economic activity to an estimated $94 million for Australia.

The Australian government's objection to recognising trans-Tasman tax paid on company dividends, otherwise known as mutual recognition of imputation credits (MRIC), has always been that it delivers more to New Zealand than Australia.



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