New Zealand: the relentless rise of the Kiwi Dollar

Is it justified?

According to xe.com, an exchange rate and currency monitoring site, the "Kiwi" (as NZD is known by forex dealers) has reached 52 pence against Sterling, 85 cents versus the US Greenback and 59 cents against the Euro. 

Its level is almost unprecedented.  Ten years ago it stood at these levels:

• 38 pence against Sterling
• 43 cents against the American Dollar
• 44 cents against the Euro.

It's been appreciating steadily (dips and dives along the way notwithstanding).  Why?

Well, the banks in New Zealand are sound, well capitalised and under-exposed to foreign debt issues. Japanese investment has flowed in as investors in "the carry trade", switching Yen for Kiwis, take advantage of more profitable exchange rates. And immigrants keep pouring in bringing their Pounds, US Dollars or other currencies to snap up real estate, kick-start companies, fund their retirements, or educate their kids.

But most importantly there's been a fundemental shift in the business New Zealanders undertake.  Not only have they opened up entirely new markets, like being the first OECD country to win a free-trade agreement with budding superpower China, for example, but also diversified into biotechnology, information services, tertiary education and tourism.

In addition, their mainstay agricultural export products are feeding the Chinese. Already China is New Zealand's biggest and fastest growing export market. Now that infrastructure has largely been built in the Peoples' Republic, hunger for hard commodities from Australia, South America and particularly Africa will start to subside. But as their population gets wealthier, New Zealand will provide the protein they seek to feed their burgeoning hunger.

Already the Chinese are sniffing around to see which farms to buy.  The chief executive of Fonterra, New Zealand's largest dairy company, said recently that this was understandable but fairly unnecessary as Fonterra was geared up to providing the Chinese with the products they desire.

Significantly, as the Euro stumbles due to the Eurozone sovereign debt crisis, and the Americans seeth at the humiliating downgrade of their credit rating by a world-recognised agency (as scaremonger economists warn of impending default), investors liquidating assets into cash search for safe haven currencies.  One senior American economist earmarked the Norwegian Kroner, Swiss Franc and Canadian Dollar as examples of currencies to hedge your bets with.

As New Zealand's economy strengthens, that US economist could well have added the New Zealand Dollar to that illustrious list.

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