New Zealand Dollar Trend In-Depth Analysis: Why Is the Kiwi Continually Depreciating?

The New Zealand dollar (NZD, New Zealand dollar, currency code: NZD) is one of the world’s most traded currencies, ranking ninth in global forex trading. In 1985, New Zealand officially adopted a floating exchange rate system, with the Reserve Bank of New Zealand ceasing to publish official exchange rates and ending its peg to a basket of weighted currencies.

Recent Performance of the New Zealand Dollar: From Peak to Trough

According to historical exchange rate data, the NZD/USD has fallen from a record high of 0.88 in 2014 to slightly above 0.5 USD, a depreciation of over 32%. Behind this significant decline are complex economic factors.

Commodity Currency Characteristics: The Correlation Between the NZD and AUD

The AUD and NZD are often seen as barometers of global economic growth. Australia and New Zealand are typical export-oriented economies, mainly exporting coal, iron ore, copper, aluminum, wool, and cotton textiles. This economic structure causes the AUD and NZD to move in tandem with commodity prices.

Therefore, these two currencies are called “commodity currencies,” defined as currencies supported not only by government credit but also by tangible assets. Today, the AUD, CAD, and NZD are all typical commodity currencies. Since the global recession after the pandemic, both currencies have depreciated against the USD by more than 10%.

Four Major Factors Contributing to the NZD’s Depreciation

Fluctuations in Agricultural and Livestock Prices

Over two-thirds of New Zealand’s exports are agricultural products, wool, and dairy. Changes in international market prices for these commodities directly impact New Zealand’s economic outlook, which is reflected in the NZD’s movement. When these commodity prices rise, it signals an improvement in New Zealand’s economic health.

Continued Decline in Tourism

Tourism is a vital pillar of New Zealand’s economy. After the outbreak of the global pandemic, the tourism industry was severely impacted, with a significant drop in foreign visitors. This industry decline has had long-term negative effects on the overall economy and currency performance.

Federal Reserve Policy Dominance

The NZD/USD exchange rate is directly influenced by US interest rates. As the Fed continues to raise interest rates, the USD strengthens relative to the NZD. The widening interest rate differential between the Reserve Bank of New Zealand and the Federal Reserve drives the continued decline of the NZD/USD cross rate.

Global Sudden Events

Any global emergency can affect New Zealand’s export trade. As an export-driven economy, New Zealand is highly sensitive to global economic fluctuations.

Future Outlook for the NZD

According to forecasts from major investment banks, the NZD/USD exchange rate may continue its weak trend:

• In six months: 0.594
• In one year: 0.5934
• In two years: 0.5885
• In three years: 0.5834

In the long term, due to the global economic recession, the NZD may enter a bear market. However, the upward momentum of the NZD ultimately depends on New Zealand’s economic growth, increased external demand for its products, and domestic GDP growth.

When demand for risk assets is strong, commodity prices tend to rise, prompting investors to allocate funds into high-yield assets like gold and other commodities, while selling off the USD. This can lead to a rapid appreciation of the NZD against the USD. Currently, the USD shows resilience amid market volatility, so traders should monitor key policy decisions from the Federal Reserve and the Reserve Bank of New Zealand.

Overview of Investment Methods for the NZD

NZD Fixed Deposit

The most traditional method is to exchange local currency for NZD at a local bank and deposit it as a fixed-term deposit. Based on the current exchange rate, convert the local currency into NZD, deposit it in a bank fixed deposit, earn interest upon maturity, and then convert back at the prevailing rate. The advantage is lower risk; the downside is limited returns.

NZD Funds

NZD funds are foreign exchange funds that invest in the New Zealand dollar. Due to significant exchange rate volatility, they are managed by professional fund managers, with relatively higher risks and returns.

NZD Futures

NZD futures are a type of foreign exchange derivative, a futures contract that stipulates trading at a predetermined future date and price. NZD futures are traded on the Chicago Mercantile Exchange (CME), with the product code NE, and a minimum tick size of 0.0001 points. Futures are margin trading instruments, allowing both long and short positions, but carry the risk of margin calls or liquidation.

Contract for Difference (CFD)

A CFD is a contract between buyer and seller based on the price difference of an asset, where the seller pays the buyer the difference between the contract price and the settlement price in cash. No physical goods are exchanged. Compared to futures, CFDs require less margin, have higher capital efficiency, and, in theory, have no delivery deadline, allowing long-term holding. CFDs support two-way trading, enabling both long and short positions, making them particularly suitable for short-term trading of currency pairs with predictable trends.

Common NZD Trading Currency Pairs

• NZDUSD: New Zealand dollar / US dollar
• GBPNZD: British pound / New Zealand dollar
• EURNZD: Euro / New Zealand dollar
• AUDNZD: Australian dollar / New Zealand dollar
• NZDJPY: New Zealand dollar / Japanese yen
• NZDCHF: New Zealand dollar / Swiss franc
• NZDSGD: New Zealand dollar / Singapore dollar
• NZDCAD: New Zealand dollar / Canadian dollar

Conclusion

As a typical commodity currency, the NZD’s movement is closely related to global economic conditions and commodity prices. Investors should pay close attention to New Zealand’s export data, tourism recovery, Federal Reserve policies, and overall global economic trends when deciding whether to participate in NZD trading. Choosing appropriate investment methods and operating according to personal risk tolerance and market judgment are key to rational investment decisions.