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“Shakespeare is the happy hunting ground of all minds that have lost their balance.”

James Joyce

Commentary & Analysis

Six reasons why I believe the New Zealand Dollar is overvalued… 

For disclaimer purposes, we are short NZD/USD.  So yes, I am “talking my book,” as the expression goes.

  1. BEIJING, Nov 20 (Reuters) – China’s industrial capacity utilisation ratestood at 78 percent in the first half of this year, its lowest point since the fourth quarter of 2009, a government official said.
  2. The Reserve Bank of New Zealand says so.  “The two most significant challenges facing the bank at present are the overvalued New Zealand dollar and overvalued housing market,” Wheeler said in his preamble to the [Reserve Bank’s annual] report.

    New Zealand House Price Index: Nose bleed seats?

  3. Wool prices are down 36% since June 2011, while NZD/USD is up 9.2%

  4.  New Zealand’s Current Account continues to spew red ink.

  5. Yield spread relative to the US is fading.  The chart below compares the 10-yr benchmark spread differential between New Zealand and the US and the currency pair.

  6. A tight correlation with emering markets.  NZD/USD tends to move in line with emerging market stocks.  Even the hint of Fed tapering is likely to hit EMs hard again.