New Zealand ETF Falls Despite Intervention Comments

In what may be seen as a surprise to some traders, the iShares MSCI New Zealand Investable Market Index Fund (NYSE:ENZL) is off about 2.7 percent Wednesday even after New Zealand's Reserve Bank Governor Graeme Wheeler made comments regarding a possible intervention in the foreign currency market to possibly weaken the country's dollar.

The New Zealand dollar, also referred to as the kiwi, has been the second-strongest developed market currency against the U.S. dollar since late 2008, trailing only the Australian dollar over that time. NZD/USD is currently trading lower by about 1.3 percent at 0.8361 in what is shaping up to be one of the kiwi's worst one-day performances against the greenback in weeks.

Roughly a year ago, NZD/USD was found trading around 0.7518, but the iShares MSCI New Zealand Investable Market Index Fund has been a stout performer in that time, gaining almost 22 percent prior to today's tumble.

The ETF's resilience and solid performance in the face of a rising kiwi is impressive given that New Zealand is an export-dependent economy. A stronger dollar is seen as crimping profits for New Zealand exporters because they must convert weaker currencies gained in international sales of their goods into fewer New Zealand dollars.

Several weeks ago, executives from the country's industrial sector met with policymakers, imploring New Zealand's government to take action against the rising dollar. However, the Reserve Bank of New Zealand has, to this point, been reluctant to directly intervene in the forex market. Recent economic data points show that intervention may not be necessary because New Zealand's domestic economy is in sound form.

For example, in a report published on February 15, Statistics New Zealand said retail sales there jumped 2.1% in the fourth quarter of 2012. That easily beat the consensus estimate calling for a 1.4 percent increase. Prior to that, another report showed New Zealand consumer confidence is residing at 32-month high.

Many traders have not been expecting the Reserve Bank of New Zealand to cut interest rates anytime soon. In fact, a recent report by Credit Suisse said there is a chance rates there could rise by 30 basis points over the next 12 months.

Still, ENZL has fought the dollar headwinds off to trade higher, even as New Zealand's manufacturing sector bleeds jobs. That alone is a curious phenomenon given that materials and industrial names combine for over 37 percent of the ETF's weight.

Perhaps today's glum action in the ETF is indicative of one thing, that being that markets only see currency intervention as a near-term gambit that rarely produces the desired results over the long haul. ENZL, the only New Zealand-specific ETF, debuted in September 2010 and is now home to $186.8 million in assets under management. The ETF is not hedged against NZD/USD fluctuations.

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