Chip Hanlon
Although the New Zealand dollar is oversold, the recent plunge shouldn't be taken lightly.
Wasn't it the U.S. dollar that was supposed to fall apart? The twin deficits, the empire of debt, the rise of China -- all of that was supposed to bring on calamity. So why is it the New Zealand dollar that has fallen out of bed recently? Take a look at what the kiwi has done since the start of the year. Even while the CRB index rallied in March to get back on the plus side for the year, the decline in this "commodity currency" picked up steam. It's now off more than 10% for 2006. Sure, in the last couple of days the U.S. dollar has stumbled and many foreign currencies have bounced nicely as a result, including the yen and the euro, but the New Zealand dollar has hardly budged. So what's going on? Rising interest rates in the world's largest economies are starting to impact the kiwi in a number of ways. First, as I wrote in January, if the U.S., Japan and the European Union are tapping the economic brakes, there is likely to be a negative trickle-down to the commodity economies of Canada, Australia and New Zealand; it may already be affecting these places. |
If so, New Zealand is particularly at risk because it's not a commodity economy rich in energy resources, metals and other industrial raw materials, as are Canada and Australia. New Zealand has benefited greatly from the perception that it is, but investors may be surprised to learn that more than 50% of its exports are still related to agriculture. Not that agriculture is unimportant, but it doesn't quite square with the theme of feeding China's voracious industrial appetite, which some investors believe they're tapping by buying exposure to New Zealand.
RSS
