Europe is going to hell in a hand basket. Iran is poised to hold the world to ransom for its oil. So what’s giving the New Zealand dollar a boost?
Last night, EU officials agreed a bailout for Greece that no one seriously believes is going to save it. In Iran, Mahmoud Ahmadinejad is turning off the pipelines to the West for daring to interfere with his nuclear weapons programme. In the world in general, developed economies are still struggling to recover from a global crisis that almost spelt the end of capitalism as we know it.
You might not think these are circumstances that would encourage riskier investments, including in small economies like New Zealand. Nonetheless, the New Zealand dollar is doing brisk business, presently at a 5-month high against the US dollar and a 3-month high against the pound. So what’s the deal?
Glass-Half-Fullism Among Foreign Exchange Investors
One reason the NZ dollar is flying high is that foreign exchange investors are glass-half-full kind of people. They spot good news, and they latch onto it like it’s the last turkey on the shelf at Christmas.
For instance then, reports that the US recovery is picking up pace have buoyed the New Zealand dollar. For the past three months, job creation in the US has exceeded the wildest dreams of investors, helping to boost consumer confidence and retail sales. This encourages investors to stop nervously biting their fingernails, and get buying. Hence the rising New Zealand dollar.
New Zealand Is Rising (And Foreign Exchange Investors Know It)
Second of all, there is NZD strength because New Zealand is a rising star. In the past decade or so, New Zealand has become the premier distributor to China for milk products (I kid ye not) creating a behemoth new source of revenue for its dairy industry. This is giving its economy a huge boost.
In addition, New Zealand is enjoying a strong job market and consumer confidence, in spite of the earthquakes in Christchurch 12 months ago. Unemployment fell –0.2% to just 6.3% last month for instance, putting its unemployment rate among the lowest in the developed world. Retail sales meanwhile jumped 2.2%, also indicating optimism among consumers.
This guest post was contributed by Michael Smith from foreign exchange specialists Pure FX.