What To Keep In Mind When Trading NZD

What To Keep In Mind When Trading NZD
What To Keep In Mind When Trading NZD

The New Zealand Dollar (NZD) is surprisingly popular among traders given the unique characteristics of the country it’s from – taking a larger than life role in the markets, not unlike the hobbits they are now famous for. Before the Lord of the Rings, though, the kiwi was most associated with New Zealand and is used as a shorthand to refer to the NZD. Here are some things you might want to keep in mind when trading the Kiwi.

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The land of the kiwis is quite small by most measurements: just under 4.7 million inhabitants (about half the size of New York City), and weighing in at around $185B in GDP (2016). However, because of their sizeable participation in the trade as well as an emphasis on open markets and pro-business policy, they attract a lot of interest from investors and traders.

The New Zealand economy is highly dependent on the export of commodities – including agricultural goods – and tourism. It has little domestic manufacturing, so is entirely dependent on imports for machined products and electronics. In this respect, New Zealand is tied with Australia as its largest trade partner, and the NZD will often mirror moves in their large (and only) neighbor’s currency.

Also, like Australia, New Zealand tends to have higher interest rates than the rest of the developed world, making it a prime target for carrying trade. The Kiwi central bank – the Reserve Bank of New Zealand (RBNZ) – is mandated to keep the inflation at 1.5%, with the governor subject to removal should the target not be met (an unusually strong commitment to price stability).

Special considerations

With New Zealand being so far south, it is subject to seasonality given its dependence on agricultural exports and tourism. But also being in the southern hemisphere, the seasons are reversed; with increased economic activity in the summer months of December, January and February.

NZD Events

Given the relative size of the country, New Zealand events are often not considered as “major,” and data releases are not as frequent as in other major economies. The RBNZ holds only eight policy meetings a year, which naturally can cause currency fluctuations, especially given unexpected moves by the regulator. Additionally, the bank releases its Financial Stability Report twice a year which is studied by traders to get insight into long-term expectations of the RBNZ and can also cause some market volatility when released

Monthly events include the release of inflation rate around mid-month, with inflation being the key metric focused on by the RBNZ, this is a closely followed data set that can impact markets if there is an unexpected miss from consensus. Visitor arrivals data is released typically a couple of days later; which is especially relevant during the summer months. Traders can become more bullish about the NZD if more tourists arrive to support the economy, and can get downbeat if the data underperforms. Additionally, as an export-driven economy, the balance of trade is an important metric to follow.

Dairy is a key component of the Kiwi economy, so the Dairy Trade Price Index, released every two weeks, is another metric that NZD traders typically follow, though it usually requires a significant upset in the data to impact the currency.

Orbex’s economic calendar is a great way to keep track of these events, including consensus expectations so that you can be ready ahead of time. You can trade NZDUSD, AUDNZD, NZDCAD. Additionally, we offer Euro to NZD and NZD to JPY.

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