NZD/USD – ForexNZDUSD
In the Forex market, nearly all the currencies of the world are traded, but some of the currencies dominate the financial market due to the strength of the country’s economy and volume of trading. The exchange rate of New Zealand against the United States Dollar is indicated by NZD/USD, where NZD is the base currency, and USD is the quote currency. The USD is recognized as the most traded currency in the world, while NZD is also ranked among the top ten most traded currencies.
The NZD/USD pair is known by the nickname ‘Kiwi’ in the Forex market and is one of the popular commodity pairs along with AUD/USD and USD/CAD. As being a commodity pair, the exchange rate of NZD/USD is mostly impacted by agriculture and tourism, and the economy of New Zealand is based on exports of agriculture along with metals.
The NZD/USD pair means how many U.S Dollars will be needed to buy one New Zealand Dollar. For example, the current exchange rate of NZD/USD is 0.69, which shows 1 NZD equals 0.69 USD; in other words, it would take a trader to pay 0.69 U.S Dollars to buy 1 New Zealand Dollar. The NZD/USD pair is also considered a carry trade, which is a trading strategy where a trader borrows at a low-interest currency and then invest in an asset or converts the amount into another high yield currency that may potentially give a high rate of return.
History of NZD/USD Currency Pair
The NZD and USD currency pairing offers numerous trading and investing opportunities, and like other pairs, the NZD/USD pair allows traders to try to take advantage of market volume and volatility. As being a commodity pair, the value of NZD/USD tends to be relative to the current market value of an underlying commodity. The given commodity is said to be relevant to the economy of New Zealand or for both New Zealand and the U.S.
The New Zealand Dollar was introduced in 1967 and made into an official currency; before it, New Zealand used many options as currency, which included physical goods, British Pound, and Australian Pound. Today, NZD is a free-floating currency like other currencies, and its value is determined in the open market. In terms of GDP, New Zealand ranks 69 and has close trading partnerships with the USA, China, Australia, and Japan.
The significant commodities related to the NZD/USD pair are mostly agriculture, such as dairy products, but also include metals (iron and silver) and coal resources. New Zealand is said to be among the top five exporters of dairy products that consist of butter, cheese, and milk powder. Of all the total exports of New Zealand, the dairy products contribute 30%. If, for instance, the milk prices rise, then it improves New Zealand’s economy, and traders may increase their interest to buy NZD. New Zealand is a major exporter of agricultural products to the USA, which amounts to almost $2.2 Billion.
Apart from agriculture, New Zealand is one of the most beautiful country to visit, it is known as a tourist hub. New Zealand’s economy has gained tremendously by tourism alone as each year thousands of people visit the country all year round.
The all-time high exchange rate of NZD/USD pair was recorded 1.49 on November 5, 2011, while the all-time low was 0.3962 on October 16, 2000. The NZD/USD pair tends to have a positive correlation with the AUD/USD pair.
How to Trade NZD/USD Pair
The NZD/USD pair is mostly used by traders and investors for a carry trade, where one currency is sold, and the proceeds are used to invest in a currency that gives a higher yield. The investors will buy NZD and fund it with either JPY (Japanese Yen) or CHF (Swiss Francs), which are low yielding currencies. In a carry trade, the profit is gained through market fluctuations and differences in the interest rates.
The NZD/USD pair can also be traded using Contract for Difference (CFDs) which is a popular option among short term traders. Trading CFDs allows traders to speculate on price changes of the underlying asset rather than owning the currency. Traders use leverage to gain larger exposure in the market and potentially magnify their profits but there is also equal risk of considerable losses if the market does not move in the direction as predicted by a trader. With CFDs, the trader can Buy (go Long) or Sell (go Short).
How to read the Price Change in NZD/USD Pair
As being one of the first countries where the sun rises, New Zealand’s financial markets are first to open for trading purposes. The head start to open markets allows the numerous banks and traders to position themselves better and anticipate the upcoming news and events of the day.
The ticker for the New Zealand Dollar exchange with U.S Dollar is given by NZD/USD. According to market trends of previous months, the NZD/USD pair reached the lowest value of 0.5654 on March 19, 2020, and the highest value of 0.6562 on June 8, 2020, and currently, NZD/USD pair stands on 0.6451. The Bid price or willingness of traders to buy NZD is 0.6448, while the Asked price or traders willing to sell NZD IS 0.6447. The market forecast suggests a Bearish trend for NZD, while a USD will remain neutral. The market sentiment also indicates that most traders are going short or selling in the NZD/USD pair as there are 75% Sellers and 25% Buyers in the market.
What causes price change in the NZD/USD pair?
The exchange rate of NZD/USD is determined by central banks of both New Zealand and the USA, which are the Reserve Bank of New Zealand (RBNZ) and the U.S Federal Reserve, also known as Fed. Both the banks issues monetary policies and financial reports every month that allows traders to determine the volatility of the NZD/USD pair. The interest rate differential between the RBNZ and Fed will determine the value of the currencies when compared with each other.
The Fed plays a part in strengthening the U.S Dollar, which impacts any other currency that it makes a pair with. For example, the NZD/USD pair could depreciate when the U.S Dollar gains in front of the New Zealand Dollar. The RBNZ is known to take aggressive steps to control inflation, and New Zealand is said to implement a high prime interest rate known as Official Cash Rate (OCR) as compared to other economically stable countries. For instance, in 2016, RBNZ set the interest rate at 2% while the Fed kept it at 0.5%. As a result, the difference in interest rates influenced the traders and investors to execute a carry trade.
Apart from the decisions of the central banks, there are many fundamentals or macro-economic factors that affect the NZD/USD exchange rate, such as interest rates, inflation, Gross Domestic Product (GDP), domestic and international politics, and economic news and releases. Due to aggressive policies of RBNZ on inflation with high-interest rates, NZD is considered to be a ‘safe haven’ for capital investment.
The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.
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