NZD explained: A guide to NZD
Ben Lobel November 23, 2021 12:56 PM
NZD is the currency of New Zealand and is involved in some significant forex pairs. Discover everything you should know about NZD before you open a position.
Looking for something in particular? Jump ahead with these links.
- Introduction to NZD
- The economy of New Zealand
- What moves the price of NZD?
- A brief history of the New Zealand dollar
- Popular New Zealand dollar currency pairs
- New Zealand dollar trading hours
- Start trading New Zealand dollar pairs
Introduction to NZD
The New Zealand dollar is the national currency and legal tender of New Zealand and associated jurisdictions such as the Cook Islands and Tokelau, as well as the British territory of the Pitcairn Islands. It was introduced in 1967 to replace the New Zealand Pound and today frequently sits among the ten most-traded currencies in the forex market.
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The economy of New Zealand
New Zealand currently has a GDP of more than $212 billion, with a GDP per capita of some $42,000 (USD), according to 2020 World Bank statistics. This puts the nation around 52nd in terms of the largest global companies by nominal GDP. It has a developed free-market economy with key industries including aluminium production, food processing (particularly dairy) and metal fabrication.
The Reserve Bank of New Zealand is the country’s central bank, which is responsible for overseeing monetary policy and maintaining financial stability.
The economic history of New Zealand documents a journey from Polynesian tribes living off local resources, to the 19th-century arrival of European settlers, who began trading with the native people and eventually established their own communities.
Banking institutions emerged following the European arrival, and the country gradually saw the development of towns, accelerated by the emerging trade of natural resources and minerals including gold, as well as agricultural products such as wool. As gold reserves depleted, the country ramped up its export markets, with pastoral products a key source of trade.
By the 21st century, New Zealand had diversified into tourism, which accounts for around 5.5% of the country’s GDP today, according to figures from Statista. New Zealand also moved into a trade surplus for 2020 for the first time since 2011.
What moves the price of NZD?
There are a variety of factors that influence the price of NZD against other currencies. These include monetary policy decisions from the Reserve Bank of New Zealand, macroeconomic releases, and political events, but also factors such as dairy prices, tourism numbers and balance of payments (export and import values).
Traders should be aware of New Zealand Reserve Bank meeting dates and the release dates of key reports to help them keep on top of developments. Check out our economic calendar and don’t miss the latest announcements that can move markets.
It’s important to note that while NZD may be strengthening or weakening, you still have to consider how the other currency in the pair is performing before assessing the reasons for a pair’s moves.
The New Zealand Reserve Bank controls monetary policy and will raise interest rates to control inflation. For example, in October 2021, the Reserve Bank raised interest rates for the first time in seven years in a bid to control inflation caused by the rising cost of construction materials, agricultural products, transport and fuel. Higher rates tend to stimulate foreign investment, meaning the demand for that particular currency is greater. In turn, this means NZD may strengthen against a basket of other currencies.
Conversely, interest rates can be lowered in an attempt to stimulate economic growth and may cause investors to seek currencies with a better return, pushing the NZD price down.
News reports to consider when trading NZD, as with a range of other currencies, include sentiment, which shows whether traders are net long or short, inflation data, consumer confidence, and GDP itself, the definitive measure of economic activity. News of milk and dairy price fluctuations, as mentioned, can be consequential for NZD in particular, with tourism numbers also playing a significant role.
Broadly, a rising GDP often correlates to a strengthening currency, and a falling GDP a weakening currency. Other measures of how the economy is doing can be found in retail sales, and services and manufacturing PMIs.
Political and socioeconomic influences can both hit all currency prices hard. For example, when coronavirus hit global economies in late February 2020, NZD plunged against the US dollar as USD surged to new heights when the greenback became the safe haven of choice amid the enduring economic instability.
A brief history of the New Zealand dollar
The history of the New Zealand dollar goes back to 1967 when it replaced the New Zealand Pound as the country’s official currency. Before this point, monetary policy was decided from the UK and the Pound had been issued by independent banks. When the New Zealand dollar came in in July, it was pegged to the US dollar at $1.43, meaning $1.43 US dollars were needed to buy one New Zealand dollar, but the currency slipped to $1.12 by November as the British Pound was devalued.
In 1985, NZD was floated at US$0.4444 and has since seen its value defined by the financial markets with a recent range between 0.5400, which was seen as the coronavirus crisis took hold in March 2020, to 0.8800, seen in July 2014 on the back of strong export and monthly trade surplus data.
Popular New Zealand dollar currency pairs
NZD/USD is the forex ticker for the exchange rate between the New Zealand dollar and the US dollar and is the ninth most-traded in the world, according to the Bank for International Settlements. It tells traders how many US dollars are needed to buy one New Zealand dollar in real time.
As the pair encompasses the New Zealand and US economies, traders will, as always, need to consider fundamental factors surrounding central bank decisions when trading this currency. In this case, traders should follow key policy decisions from the Federal Reserve and the New Zealand Reserve Bank for information that might impact the pair.
Also, since New Zealand is the world’s largest exporter of milk powder, the price of milk is important for NZD traders to pay attention to, as well as the prices of wider agricultural products. A rise in such prices may be a proxy for New Zealand’s improving economic health and thus a precedent for NZD gaining traction against a range of currencies, including USD.
Due to its high trading volume, NZD/USD is generally recognised as a liquid pair, meaning the risk of slippage is minimised when trading this market.
EUR/NZD is the forex ticker for the exchange rate between the euro and the New Zealand dollar. It tells traders how many New Zealand dollars are needed to buy one euro in real time.
This minor pair, sometimes known as the ‘Euro Kiwi’ is outside of the ten most-traded pairs in the forex market, but remains a liquid pair. As well as monetary policy decisions from the New Zealand Reserve Bank, traders should be aware of European Central Bank policy that can impact the euro’s rate and affect euro pairs including this one.
GBP/NZD is the forex ticker for the exchange rate between the British Pound and the New Zealand dollar. It tells traders how many New Zealand dollars are needed to buy one British Pound in real time.
Known as the ‘Kiwi’, this pair’s movement is susceptible to policy decisions from the Bank of England, as well as the New Zealand Reserve Bank, in addition to the usual geopolitical and other fundamental factors that affect each of the UK and New Zealand economies. The pair is also liable to periods of volatility, meaning effective risk management is particularly important when trading such pairs.
New Zealand dollar trading hours
The New Zealand dollar is available to trade 24 hours a day, five days a week – from 5pm (EST) on Sunday evening to 4pm Friday night.
The best time of day to trade NZD will depend on which pairing you decide to focus on. As a rule, each pair will see the most movement when its sessions overlap. For example, the NZD/USD pair would be more highly traded when both the New York and Sydney forex sessions overlap.
Start trading New Zealand dollar pairs
You can trade NZD against other major currencies such as the Euro, British Pound and US dollar, as well as a range of other pairs, via CFDs. Take your position on whether forex prices will rise or fall in the future, without having to buy the underlying asset.
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