By: William Doody
After trading in a relatively narrow band versus the U.S. Dollar for several years, the New Zealand Dollar or “Kiwi Dollar” experienced several wild swings in 2008. In recent weeks, the USD-NZD trade has stabilized, with the Kiwi returning to the 1.50 mark against the Dollar. In the past several days, government figures from New Zealand have made encouraging comments regarding the prognosis for the New Zealand economy. These improving fortunes should help the Kiwi to further stabilize and to hold in the 1.50 range. Economic improvement will remove the need for further rate cuts and should help New Zealand to maintain a favorable yield relative to safe-haven currencies such as the Yen.
For those investors interested in a speculative trade, now may be a good time to sell the Yen versus the Kiwi for added yield. We would remain neutral on the USD-NZD trade until the Kiwi shows further evidence of stabilization. The recent trend, however, remains positive for the Kiwi. Risk factors include an unexpected interest rate cut and/or signs of economic weakening. Based on recent comments from government ministers, we consider the former unlikely and the latter a slim possibility.