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NZD/USD

NZD/USD

Type : Currency | Group: Majors | Base: New Zealand Dollar | Quote : US Dollar

  Interest Rates  
Reserve Bank of New Zealand Federal Reserve
0.25% 0.00 – 0.25%

NZD/USD is a currency pair classified as one of the Majors. The New Zealand Dollar is considered a commodity currency and carries the highest yield among the major currencies.

Nicknames

The most common nickname for the New Zealand Dollar is Kiwi. The currency pair is sometimes referred to as the Kiwi, or Kiwi Dollar. The nickname is a commonly given to New Zealand citizens and stems from their national flightless bird.

NZD/USD Correlations

The New Zealand Dollar tends to have correlated movements with other commodity currencies such as the Australian Dollar and Canadian Dollar because of similarities in their economies.

Because New Zealand tends to offer the highest interest rate among the major economies, the currency is often used in carry trades. As these trades gain popularity during periods of increased risk appetite, the NZD/USD will carry positive correlation with other risk-based assets, such as the equity markets. These correlations tend to be strongest when there is clear risk sentiment driving the markets, and are known to diverge often.

When Does NZD/USD Experience Volatility?

NZD/USD tends to experience its highest volatility during the North American and European overlap, similar to most majors. The pair tends to have fairly steady volatility during other parts of the day as well, as economic releases are scheduled during the Asian session, a time that is usually quiet for the other currency pairs.

Who Trades the NZD/USD?

NZD/USD is commonly traded by investors looking for yield through a carry trade. The higher cost associated with shorting the pair deters traders during extended periods of US Dollar strength. The commission on the currency pair tends to be higher than most majors, if not the highest. For this reason, the pair is less popular among scalpers.

Position traders and intraday traders tend to drive more volume in the pair. The pair is also known to offer volatility during Asian hours, and often as the North American session tends to slow ahead of the Asian open, traders will look to the pair for volatility, especially if there is an economic release on the schedule.

What Factors Affect NZD/USD?

Interest rate differentials are a big driver of the NZD/USD exchange rate. During periods of US Dollar weakness, often the currency pair is preferred as it is associated with the largest carry interest. But as New Zealand is export driven, the Reserve Bank of New Zealand (RBNZ) is active in lowering the value of their exchange rate.

When exports decrease, lowering the exchange rate can offset some of the loss in income, and increase demand. The RBNZ can lower the interest rate to maintain a lower exchange rate, and is often involved in ‘jaw-boning’ the currency down, essentially threatening to intervene in an attempt to reduce bullish sentiment in the markets for its currency. Further information in regards the RBNZ can be found at its official site. Further information on the US central bank, the Federal Reserve, can be found at https://www.federalreserve.gov/.

Risk sentiment also influences NZD/USD. During periods of risk appetite, investors seek out the currency for its positive yield, while heavy selling is seen during risk aversion as investors are quick to exit out of the currency pair.

New Zealand’s export industry is driven by dairy products. New Zealand releases a bi-weekly economic release updating their global dairy trade index figures. As exports comprise a large part of their GDP, a decline in exports, or specifically dairy, can impact the economy in a negative manner. Poor performance in the economy can lead to a weaker New Zealand Dollar, or trigger action from the central bank, once again leading to a weaker NZD.

About New Zealand dollar

The New Zealand dollar is the official currency of New Zealand. The New Zealand dollar, although popular in some trade, is not generally considered a major currency. However, it is quoted against all the major currencies, including U.S. dollar (USD), Japanese yen (JPY), British pound sterling (GBP), euro (EUR), Australian dollar (AUD) and Canadian dollar (CAD).

The New Zealand dollar is also referred to as the kiwi.

The New Zealand dollar is a commodity currency as New Zealand’s economy is heavily geared towards agricultural production. However, the impact of commodity prices on the currency has not been historically as pronounced as other commodity currencies. This may be because trends in agricultural prices tend to be very hard to call on a day to day basis, unlike changes in the world price of gold or oil.

The kiwi also holds an important spot in the history of currency trading. The kiwi entered the forex market with a limited float, as befits a smaller economy. When currency options were being introduced to the forex market, a Bankers Trust currency trader named Andy Krieger used options to take up a short position on the New Zealand dollar that was allegedly worth more than the entire money supply of the country. The kiwi saw a sharp dip of 5% followed by fluctuations between a 3% to 5% loss. Krieger made millions for his employer and later left to join George Soros’s Quantum Fund.

About US Dollar

The USD is integral to world trade in that it belongs to the world’s largest economy and acts as the world reserve currency. Because of this unique situation, many of the standard economic rules do not seem to apply to the USD.

The U.S. government has had long periods of fiscal irresponsibility and yet the USD has not always suffered during inflationary times that would damage any other currency. This is because, as the world’s largest economy, the USD is considered a safe haven currency in times of global uncertainty. However, this rule doesn’t always hold, and the U.S. dollar does eventually pay for periods of prolonged inflation and trade deficits – it just seems to enjoy a much longer lag before any market reaction takes place.

NZD/USD

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