Low wages are forcing the dollar higher
Hot on the heels of the decision of the Reserve Bank to intervene in the currency market, I found a fascinating comment by a Japanese currency trader.
Masafumi Yamamoto, a currency economist at the Nikko Citigroup in Tokyo
Yamamoto said Japanese investors would likely increase their buying of kiwi investments - uridashi bonds, funds investing in New Zealand and speculative currency instruments - thanks to the stronger local economy. Stable wages and a stable unemployment rate are prompting investors to put the money into higher-risk investments, such as equities and foreign currency assets.
So the refusal of New Zealand bosses to pay higher wages, despite low unemployment for some years has a cost. By hoarding the profits - bosses are inadvertently encouraging speculation on the NZ dollar.
Profit hoarding pushes up the exchange rate, hurts exports and ultimately their business, as foreign investors hunt easy profits. Short term investors are not there to help grow the business, they are there for a quick buck. Perhaps manufacturers ought to be more aware of the larger implications of paying low wages. Even Adam Smith, who is made out to be the hero by the arch capitalists, knew the economic advantage of keeping money in their local community - why don't they!