The Export Driven Recovery

The race to positive GDP is in full swing. While the Euro zone gets all of the negative attention, and the US shines in response, the recoveries elsewhere are casted into the shadows. In the FOREX marketplace, no country is left unnoticed, so I decided to zero-in on three export driven commodity based currencies: New Zealand, Australia and Canada. These countries have a strong portfolio of natural resources that are in high demand, and make up a significant portion of GDP. This causes high volatility in their currency performance because they move according to commodity prices. However, the global recession provided a much needed boost for these countries.

New Zealand

Always used as a great case study, New Zealand had its ups and downs as their Central Bank scrambled to tame a growing economy. Following in Australia's footsteps, New Zealand issued a major stimulus plan that was focused mainly on investments with an eye on return. Because their economy is not as exposed to the global financial markets, the effects of the recession was not as severe compared to the US and Europe. New Zealanders suffered high unemployment as businesses faced pressure from lack of confidence and funding from banks. The stimulus provided an extra boost and sent housing prices back to comfortable levels. The Central Bank raised rates to tighten the recovery, and its currency rallied in response.

Despite the current positive news, New Zealand faces a tough year ahead. They must find a way to pick up the missed pieces of their second major recession in almost 50 years. The massive stimulus may have been too much, and government debt is projected to increase to nearly 35% of GDP by 2015. This could call for spending cuts and higher taxes; both may accompany higher interest rates and other monetary stimulus withdrawals.

The full response to handling stimulus pull back will be gradual, but the New Zealand government is taking some major steps forward. Once again, returning to exports, New Zealand recently began talks with India to end trade barriers. India will be a major player in the global marketplace as their economy shifts from agriculture to manufacturing. Demand for natural resources will be high, and New Zealand has found a specific trading partner.

Australia

Similar to New Zealand, Australia was not as exposed to this financial crisis. However, the banking industry is big enough cause economic suffering. A stimulus was implemented, and the nation quickly rebounded. Australia was one of the first countries to come back with an interest rate hike. New monetary tightening measures are always coming out of their Central Bank, and investors have scrambled to profit from the recovery down under. Again, the government must pay attention to debt and cost cutting measures.

Exports have long been Australia's strong focus. One of the major players in the Asia-Pacific Economic Cooperation (APEC), Australia has responded to China's increasing demand of natural resources. The country boosted exports in coal, iron ore and steal to benefit from China's industrial boom. They realized that China and other emerging powers will dominate the global landscape as rich countries stumble. Prime Minister Rudd made strengthening ties with China his main agenda during his election. He speaks Mandarin, and is often seen shaking hands with Chinese trading partners. Exploration, development, and exporting is at the heart of the Australian economy. The country must diversify their scope of investments and try to even out their focus on domestic demand.

Canada

Canada is a major exporter of Natural Gas and investments in offshore drilling and mainland exploration up north ensures confidence in their export driven economy. The country's proximity to the US hurt its economy after the effects of our recession spread north. However, using natural resources as a hedge came in handy. Canada is involved with more projects extending northward into the untaped arctic regions, neighboring Alaska, and new pipeline deals linking the far west to the US mainland.

The country isn't just built on oil and gas, but the diversity of their economy is well evident after the stimulus concentrated investments in various sectors. The recovery is slow but better compared to their major counterparts like the US and Europe. Industries such as real estate have experienced a strong reversal. Home prices have nearly risen 0.5%, and there are even talks of another housing bubble.

Last year, the Central Bank stated that Canada's recovery will be shaped like a hockey stick. A V shaped recovery is likely, but should be handled with caution. Expect some interest rate hikes (perhaps this year), and a booming housing sector. The Vancouver Winter Olympics provides a boost to the western economy.

Employment is still a problem, but the deficit is slowing down.

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Commodity currencies should be short term investments. Ride the volatility wave while the Central Banks release their stimulus withdraw plans. Short when commodity prices decline, or if the US and Europe rebound. Over the long term, the fundamentals explained in this article ensures positivity for New Zealand, Australia and Canada.