Oh, the woes of New Zealand! The way I see it, this country has at least five things going against it right now that I think will continue to weigh on its currency.

First of all, commodity prices have plummeted and this country depends heavily on exporting commodities around the world, predominately dairy and agricultural products.

Two-thirds of New Zealand's exports are commodities. So you can see how serious the fall of commodity prices have already affected them and will continue to. When prices were high, profit margins were fat. However, now that prices have collapsed, their profit margins have declined.

Formerly, these high prices helped to offset the impact of rising interest rates and a rising currency exchange rate. New Zealand has really been hit hard in one of its biggest exports, dairy. Dairy prices are down 50 percent off of their highs and that is putting a world of hurt on the country.

In fact, Fonterra, one of the largest companies in New Zealand, has had to reduce its earnings estimates drastically because of all of this. Therefore it's anticipated that this could take as much as $3 billion out of the New Zealand economy. This is a huge deal to New Zealand and can't be overstated.

Secondly, tourism is slumping in New Zealand. Why is this important? One in 10 jobs is now linked to tourism either directly or indirectly. So when tourism tapers off, it hurts the country dearly.

Many economists estimate that tourism in New Zealand may slump as much as 15 percent this year. With this huge dent in tourism, it is estimated that it could take another $1 billion to $2 billion out of the economy. So with this problem and the slump in commodities, that will already erase about $5 billion dollars.

Thirdly, there has been a collapse in the consumer confidence all over the country. This is causing the locals to shut their wallets much more quickly than before, thus exaggerating the problems that they are already going through.

According to the central bank of New Zealand, 64 percent of businesses in the country expect a further deterioration in the economy. Thirty-nine percent say that they'll be cutting back on expenditures on their plants, machinery, and other equipment.

The chance of an economic recovery any time soon is slim, in the eyes of business owners and retail consumers.

Fourth is the problem that I see arising from a lack of ability to obtain credit. New Zealand obtains about on-third of its credit from abroad. Lately, either businesses can't get credit or the credit that they can get is much more costly, which makes doing business more expensive and squeezes profits all the more.

Most banks are requiring 20 percent down now, which wasn't the case before. So even what capital they do have is getting used and stretched all the more. This will weigh on business and retail consumer expansion for a good while longer.

The fifth problem is that New Zealand has a negative trade balance, and interest rates have fallen to 3.50 percent from 8.25 percent. I think rates will probably make it down to 2 percent before it's all over with.

The New Zealand exchange rate is reflecting these problems.

I think you could easily see the NZD/USD rate come down to the 39 to 40 level in the coming months ahead as a result.

You can tell times are tough when a country's central bank, such as New Zealand has, chops interest rates by 1.5 percent all at once and makes it known that there could be more to follow.

Also, New Zealand's interest rate is under Australia's interest rate. While this may only be temporary, it's one of the reasons why money would flow to New Zealand over Australia.

There are some bright spots emerging for the kiwi dollar (the nickname for New Zealand's currency). For example, mortgage rates have dropped down to 5.5 percent from 10 percent in a matter of months. Keep in mind also, that there is no "overhead supply" of housing there like there is in the United States.

New Zealand also has had a net migration inflow ever since the terrorist attacks of 2001. This this will continue and over time, will help them to recover once again.

Another bright spot is that New Zealanders' credit card debt as a percentage of household debt has been on the decline since 2003.

They also are over their drought, which will help their agricultural sector once again.

Also, the public is not very involved in the New Zealand stock market. So for right now, that's a plus for them.

New Zealand also didn't have the securitization of loans that became prevalent in other countries.

These pluses will eventually kick in and help New Zealand to come out of its slump that was largely brought on by the global slowdown and the high interest rate and exchange rate there.

Now, interest rates in New Zealand have come down and the exchange rate is low and likely going lower. So, once the economy starts to pick up, as well as the global economy, it will be a better day for New Zealand and, therefore, its currency too.

However, that day is not here yet, and so you've got to invest for today and how you hope things will be in the coming months.

The latter part of 2009 may show improvement, but that really could end up happening in 2010.

The institutional investor will continue to play off of these economic woes that we spoke of that continue to plague the New Zealand economy. Until they can see a day when this will begin to turn, they will probably remain short on the kiwi dollar. I'd say that's probably the wisest side of the trade to be on for at least the months ahead. But that could last for another year.

Things could be different in 2010 and 2011 for the kiwi dollar. They could even start to charge in the latter part of 2009. I'll just have to continue to take the pulse of the economy at that time to see how it's faring to know. However, for now, the kiwi will probably still head lower against the dollar and the yen for the months ahead. I don't see this trend changing anytime soon.

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