It's been a while since I have last written on Seeking Alpha. Part of this has been my focus on private equity projects, and the other reason is a lack of quality investment opportunities on either the long or the short side over the past few months.
However, in the FOREX space, the New Zealand dollar stands out as one of the lone buying opportunities. The country of New Zealand (ENZL) is politically stable, has exports in undervalued agricultural assets, a favorable business climate, and most importantly the only developed nation seriously inclining towards raising interest rates.
The primary case for buying the New Zealand dollar is the Reserve Bank of New Zealand's likelihood of raising interest rates. With New Zealand's GDP growth rate much higher than other Western nations (2.6% vs. 1.6% in the US and -0.6% in the European Union), and inflation accelerating to a 3.6% annualized pace in the 2nd quarter of 2013, the country has the flexibility to raise rates. Due to growing inflation pressures rates are expected to rise as early as March 2014.
The increasing strength of the New Zealand dollar will also be a product of continued easy money elsewhere. With the Australian economy slowing down due to less commodity exports, the European debt crisis, continued Abenomics related stimulus, and the Fed's refusal to back down on unlimited QE, no other developed nation will be raising rates in the intermediate term. Slow growth in these countries is also bearish for their currencies.
Even if developed economies recover, interest rates will not rise because the central banks are using their easy policy not as a measure of economic stimulus, but actually as a tool to monetize their countries debt burdens. Central bankers deny this, but without this financial repression, borrowing costs would to be high for these countries to finance their government spending without default or politically unacceptable reductions of the social welfare state. Since New Zealand has a debt to GDP ratio of only 36%, higher interest payments do not cripple its sovereign finances. The end result is that New Zealand dollar will replace the Australia dollar as the high yield currency in carry trades and will be the only place where bank deposits will yield a positive real return.
New Zealand's economy is also on stable footing. New Zealand is has some of the world's highest degree of economic freedom (ranked 4th by the Heritage Foundation) and lower personal and corporate income tax rates (33% and 28% with dividend imputation respectively) than the United States. Exports mostly consist of agricultural and livestock products that are recession resistant consumer durables. New Zealand is also one of the beneficiaries of the growth of meat and dairy consumption in Asian markets. Low population density and a highly educated population are also bullish signs for New Zealand economic sustainability.
Overall, I have a very strong outlook on the New Zealand dollar due to the likelihood of increased capital inflows due to higher rates and economic stability. Since there is no US listed ETF for the New Zealand dollar, the best bet for investors is to trade the currency direct on spot FOREX markets. Most major American brokers offer the New Zealand dollar amongst their FOREX options.