Count the iShares MSCI New Zealand Capped ETF (NYSEArca: ENZL) among the single-country international exchange traded funds that has recently been struggling.
Through the first eight months of this year, the lone New Zealand set a torrid pace, but the ETF has since struggled in a big way.
After shedding 4.7% last week, ENZL resides nearly 19% below its 52-week high seen in early September. Much of ENZL’s strength this year can be tied to an interesting scenario: New Zealand’s currency, the New Zealand dollar prior kiwi, is rising while the Reserve Bank of New Zealand (RBNZ) is lowering interest rates.
SEE MORE: New Zealand ETF Gets Central Bank Assist
However, RBNZ has signaled it probably will not lower rates again and that might explain recent weakness in ENZL. How a weak New Zealand dollar plays is important because the country is an export-driven economy.
“The external sector is important to New Zealand as it is an exporter of commodities such as milk and sheep and other foodstuffs. Tourism is also important to New Zealand,” according to a Seeking Alpha analysis of ENZL.
Another knock on New Zealand has been that the country is running a current account deficit, a scenario global investors are apt to monitor closely following prior repudiation of some emerging markets with vulnerability to external financing demands.
SEE MORE: New Zealand ETF Keeps Surging
RBNZ is implementing a dovish monetary policy on par with its Australian counterpart, the Reserve Bank of Australia (RBA).
“The trade deficit is in decline, which is a good trend. However, even in good phases, the bad years tend to be worse in value and not made good by the better years. Over time, the private sector in New Zealand is being drained by the external sector,” according to Seeking Alpha.
Since tumbling from its third-quarter peak, ENZL now resides 5.6% below its 200-day moving average and nearly 5% below its 50-day line. The ETF has not closed above its 50-day moving average since late September.
For more information on New Zealand ETFs, visit our New Zealand category.