Opinion: is New Zealand the new Ireland?
Bloomberg cites analysts at SLJ Macro Partners, who say that while the case of the New Zealand’s dollar is “compelling”, the reality is “quite different”.
According to the specialists, New Zealand has severe structural weaknesses that are very similar to those of crisis-hit southern European and southern emerging-market economies. For instance, they compare New Zealand with Ireland which used to be a Celtic tiger before 2007, but then fell victim of the euro zone’s debt crisis. The country has a growth model based on debt and credit, low savings rates, and current-account deficit. In their view, kiwi may be overvalued by 20%.
Westpac doesn’t share this view. They think that comparison to Ireland is debatable and argue that the biggest downside risks are the potential sharp slowdown in China and the Fed’s QE tapering, but these factors will push USD up versus all commodity currencies, not just NZD.