Kiwi Dollars

As I mentioned in my previous article I’ve been travelling the last couple of weeks. After my first ever visit to New Zealand I can happily report it is indeed a pleasant country just as the travel brochures would have you believe.

On a more serious note though –what is the Kiwi Dollars investment potential? While New Zealand’s 20 cent coin is practically identical to Australia’s 20 cent coin and indeed the NZ and Aussie banknotes look pretty similar to the traveller’s untrained eye, the two currencies are worlds apart. Or at least an impressive sailing distance apart!

In these tumultuous times it’s important to consider all FX Strategies whether they are for simply finding the safest currency to keep your saving in or whether you are looking for a winning trade.

NZ has been through the proverbial wringer over the last couple of years. It has had recession, high unemployment, earthquake after earthquake and yes a weak currency.

There is however, hopefully some economic respite out there for NZ. Economists are forecasting an improving outlook with accelerating GDP growth. This should provide support for the battered Kiwi Dollar. Under this scenario it could be worth investigating a Euro – Kiwi trade.

Also on the horizon are the diversification strategies of central banks as they reduce their reliance on US Dollars. Jens Nordvig the head FX Strategist at Nomura Securities went on record recently suggesting that the Chinese central bank “might actually be buying kiwis themselves”. Obviously this would provide support to the NZ Dollar and could be incorporated in to a strategy to go long Central Banks diversification moves while shorting the likely losing currencies from these policies such as the Euro and USD.

The NZ Dollar doesn’t have the commodity price tailwind to the extent of the AUD but it does have other attributes which make it a candidate for appreciation. The 2 which stand out to me are firstly, that things have been bad for the Kiwi for so long that they might just be about to get a bit better providing support to the currency. Secondly, NZ isn’t about to default on its debt or disintegrate into civil war and as such may attract investor, including Central Banks, interest.