Does the New Zealand dollar have further room to decline? An in-depth analysis of the NZD trend and investment opportunities

Basic Understanding of the New Zealand Dollar

New Zealand Dollar (Currency Code: NZD), also known as the Kiwi, has adopted a floating exchange rate system since 1985. The Reserve Bank of New Zealand ceased publishing official buy and sell rates and also unpegged from the trade-weighted basket of currencies. As one of the most traded currencies globally, NZD/USD ranks ninth in trading volume in the foreign exchange market, quoted as X dollars per 1 New Zealand dollar. For example, if the quote is 1.50, it means 1.5 USD is needed to exchange for 1 NZD.

Data from the 10-year trend chart of the Kiwi exchange rate shows that from the historical high of 0.88 USD/NZD in 2014, it has fallen to just above 0.5 USD, a depreciation of over 32% against the US dollar.

The Linkage Logic Between the Kiwi and the Australian Dollar

The AUD and NZD are often regarded by the market as leading indicators of global economic growth. After the pandemic, the global economy entered a recession cycle, with both currencies depreciating against the USD by over 10%.

Australia and New Zealand are both export-driven economies, mainly exporting bulk commodities such as coal, iron ore, copper, aluminum, wool, and industrial products, with Australia holding a dominant position in international trade. Due to this economic structure, AUD and NZD tend to move in the same direction as commodity prices, hence they are known as “commodity currencies.”

Commodity currencies originally referred to currencies backed by physical assets—besides government credit, they also had intrinsic value, such as gold and silver historically. Typical contemporary commodity currencies include AUD, CAD, and NZD.

Four Major Drivers of the Continuous Depreciation of the Kiwi

First, the international agricultural and dairy markets. Over two-thirds of New Zealand’s exports come from agricultural products, wool, and dairy, making the country’s economy highly dependent on these commodities’ performance. As a commodity currency, rising prices of related commodities often indicate an improvement in New Zealand’s economic fundamentals.

Second, the tourism industry’s health. Tourism is another major pillar of New Zealand’s economy. After the outbreak of the COVID-19 pandemic, the tourism sector suffered heavy losses, exerting continuous pressure on the NZD.

Third, the Federal Reserve’s monetary policy. The NZD/USD exchange rate is profoundly affected by the US dollar interest rate environment. Driven by Fed rate hikes, the US dollar has continued to strengthen, and the interest rate differential between the Reserve Bank of New Zealand and the Fed has widened. As the USD appreciates against the NZD, the NZDUSD cross rate faces downward pressure.

Fourth, impacts from major global events. Any global sudden event can affect New Zealand’s export trade. As an economy heavily reliant on exports, global shocks (such as pandemics) have a significant impact, causing the NZD to experience phased declines.

Future Outlook and Predictions for the Kiwi Exchange Rate

From a long-term perspective, due to global recession pressures, the NZD may enter a bear market phase. As a commodity currency, the AUD and NZD usually move together, but recent charts show more bearish sentiment, suggesting a potential short-term downward trend.

According to forecasts from multiple investment banks:

• Target price in 6 months: 0.594
• Forecast within 1 year: 0.5934
• Forecast within 2 years: 0.5885
• Forecast within 3 years: 0.5834

The long-term upward momentum of the NZD is driven by New Zealand’s economic growth and increased demand for New Zealand products, which in turn boosts GDP. Historically, when demand for risk assets is strong, commodity prices tend to rise, and investors tend to allocate funds into high-yield commodities like gold, while selling low-yield USD, which can rapidly appreciate the NZD against the USD.

Currently, the US dollar shows resilience amid market volatility. Traders should closely monitor key policy decisions from the Federal Reserve and the Reserve Bank of New Zealand.

Mainstream NZD Currency Pairs

Traders can focus on the following major NZD trading pairs:

• NZD/USD: New Zealand dollar / US dollar
• GBP/NZD: British pound / New Zealand dollar
• EUR/NZD: Euro / New Zealand dollar
• AUD/NZD: Australian dollar / New Zealand dollar
• NZD/JPY: New Zealand dollar / Japanese yen
• NZD/CAD: New Zealand dollar / Canadian dollar

Four Investment Methods for the NZD

1. Fixed Deposit

The NZD, as an international fiat currency, can be exchanged through Taiwanese banks. After converting TWD at the current exchange rate into NZD and depositing into a fixed deposit account, upon maturity, you receive interest income in NZD, which can then be exchanged back to TWD at the prevailing rate. This method has low risk and is familiar to operators, but yields are relatively limited.

2. Forex Funds

NZD funds are a type of forex fund, with investments in NZD managed by professional fund managers. Due to significant exchange rate fluctuations, the risk and return are both relatively high.

3. Forex Futures

NZD futures are derivative financial instruments where both parties agree to buy or sell at a predetermined future date and price. Traded on the Chicago Mercantile Exchange (CME), the product code is NE, with a minimum tick size of 0.0001 points, a minimum tick value of $10, and settled physically.

Futures are margin trading products supporting both long and short positions, essentially contracts. At settlement, regardless of unrealized gains or losses, the trader’s position is executed according to rules, with risks of forced liquidation, margin calls, or even account wipeout.

4. Contract for Difference (CFD)

CFDs are popular among retail investors worldwide. They are contracts between buyers and sellers based on the price difference, where the seller pays the buyer the difference between the contract price and the settlement price in cash. The entire process does not involve actual commodity trading, making it especially suitable for forex trading.

Forex CFDs are margin trading instruments, requiring less margin than futures, with higher capital efficiency. CFDs theoretically have no expiration date and can be held indefinitely without concerns about delivery or rollover. They support two-way trading—long and short—making them suitable for short-term trading and profit from the relatively predictable movements of commodities like the NZD.

Choosing a Forex Margin Trading Platform

To trade NZD forex, you can use legitimate trading platforms that offer forex margin services. Major platforms provide NZD trading pairs including:

• AUD/NZD (Australian dollar / New Zealand dollar)
• NZD/CHF (New Zealand dollar / Swiss franc)
• EUR/NZD (Euro / New Zealand dollar)
• NZD/JPY (New Zealand dollar / Japanese yen)
• NZD/USD (New Zealand dollar / US dollar)
• NZD/SGD (New Zealand dollar / Singapore dollar)
• GBP/NZD (British pound / New Zealand dollar)
• NZD/CAD (New Zealand dollar / Canadian dollar)

Traders should choose regulated platforms to ensure fund safety and trading transparency. Most legitimate platforms offer demo accounts for practice, support 24-hour online trading, provide low spreads and zero commissions, and are equipped with limit and stop-loss tools to protect trades.

Historical data of the NZD exchange rate over 10 years shows moderate volatility, suitable for medium- and long-term trend traders.