The milk man is kicking the crap out of the iron man — economically speaking.
Coined by Citi economists Paul Brennan and Josh Williamson, the milkman-iron man battle represents the economic struggle between New Zealand and Australia.
The iron man Australia, on the other hand, has struggled as China tempers its demand for Australian commodities.
Interestingly, as China attempts to pump the breaks on its economy, NZDAUD (the New Zealand Dollar vs. the Australian Dollar) has become a pretty clear proxy for observing China’s transition from mega investment to mega consumption.
“Both Australia and NZ are primarily commodity exporters. But Australia tends to export hard commodities, for instance iron ore, coal and natural gas, while NZ tends to export milk products, meat and wood/timber products,” SocGen’s Alvin Tan told Business Insider. “Since mid-2011, the prices of Australia’s exports have declined, while NZ’s have done better. Basically Australia’s commodity exports are more dependent on the Chinese business and industrial cycle, while NZ’s exports are less so.”
As Bloomberg’s Matthew Klein noted on Twitter, the Kiwi has rallied 22% against the Aussie dollar since summer 2012.
But China isn’t the only factor here.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said that the two nation’s central banks are also driving the Kiwi’s rally. The Reserve Bank of New Zealand is “likely to hike rates 1-2 times in the coming months” starting in March, while Australia may continue cutting “even if not until Q2,” Chandler said.
“The rate differentials moved sharply in NZD’s favour against AUD,” Tan said as well.
In addition, “The NZ economy has been benefitting from the post-Canterbury earthquake construction and investment boom, while Australia’s economy faces the end of a commodities-related investment boom,” Tan said.
Take a look at the NZDAUD over the past two years:
Business Insider Emails & Alerts
Site highlights each day to your inbox.