Why Should You Care About NZDUSD?

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NZDUSD or NZD/USD is the abbreviation used for the currency pair consisting of the New Zealand Dollar and the United States Dollar, and traders will often simply call it the “Kiwi” in reference to the flightless bird that is the country’s symbol.

Of course, the NZD trades in other pairs, but this is the primary one. The value indicates how many American dollars (the quote currency) are needed to buy a kiwi one (the base currency).


Characteristics of the Pair

Despite New Zealand’s relative size, this currency pair is remarkably popular and quite liquid. With a population of around half that of New York, the Kiwi economy generated just under $205.9B in GDP during 2017, which is dwarfed by the US’ $19.4T. But the currency has a few peculiarities that make it uniquely popular.

New Zealand has built a reputation for itself as very economically stable and pro-business, with open trade policies. Additionally, the country has relatively high interest rates in line with it’s larger (and only) neighbor, Australia, making the currency a popular target for carry trading.

Given the relative size differences between the countries, the NZD has virtually no impact on the USD, and currency pair movements are largely in response to local economic situations and arbitrage. Because of the close relationship between New Zealand and Australia, the pair often mirrors the AUDUSD.

The Big Players

Monetary policy for the kiwi currency is set by the Reserve Bank of New Zealand (RBNZ), which is quite strict in its adherence to price stability – the law requires that the bank ensure an inflation rate of 1.5%, and the head of the bank is subject to removal if the target is not met. This is an unusually strong commitment in order to keep inflation in line.

On the American side, monetary policy is set by the Federal Reserve (Fed) which maintains what is called a “dual mandate” of keeping inflation low and unemployment at structural level. As such, the Fed will intervene not just to maintain price stability, but also to support the economy.

What Makes the Pair Tick

The US dollar is widely seen as a safe-haven currency and tends to get stronger during periods of economic stress. On the other hand, New Zealand’s economy is largely dependent on exports of agricultural products and tourism.

This makes it much more vulnerable to global economic trends, and adds a seasonal nature to the currency (though being below the equator, those seasons are reversed, with higher economic activity during November-April).

Among New Zealand’s chief exports are dairy products, a legacy from when the country used to boast the highest GDP per capita in the world. Although other sectors have increased in influence as of late, global dairy prices can have an impact on the pair.

New Zealand is also the target of carry trade, as mentioned previously, and being a relatively small economy, those flows can have an important impact.

The source of the carry trade is often Japan, leaving the Kiwi somewhat open to some Japanese economic news. Additionally, arbitrage keeps the currency in line with the Australian counterpart, which can be impacted by commodity prices and economic news out of China.

On the other hand, the RBNZ meets less frequently than other central banks, leaving the currency to its own devices for longer periods of time.

Because of the location and dependence on Asia, often the NZDUSD will be more volatile in the relatively quiet Asian session, and respond more to technical factors than fundamentals, making it a popular choice among newer traders and those generally averse to high volatility in the short term.

You can get a full list of all the events that might impact this currency in the economic calendar of the Orbex website, plus additional tips that might help with your trading.


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