Analysis of the New Zealand Dollar - US Dollar rate

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Also known as Kiwi, after the fruit that grows in abundance in New Zealand and also plays a major role in the country's economy due to its high export and therefore influences this cross, the NZD/USD therefore reflects the exchange rate of the New Zealand dollar with the US dollar. In this article we will take a closer look at this currency pair by giving you all the information you need to analyze it, detect its future trends and take your positions online from a trading platform.  

Analysis N°1

Generally speaking, some events will be more important than others in terms of the NZD/USD currency pair's evolution. This is particularly the case when the major central banks of these two countries publish interest rate changes, which are sometimes drastic. In recent years, there have been several rate cuts in New Zealand in response to falling commodity prices.

Analysis N°2

Of course, major economic data such as consumer prices and inflation rates will also be very important, although the influence of US data will be stronger than New Zealand data.

Analysis N°3

Finally, the data from the Fed's Federal Open Market Committee (FOMC) is also very influential on the dollar against other currencies including the NZD. FOMC meetings are held every 6 weeks and a press conference is held after each meeting.

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Global information about trading the NZD/USD currency pair :

Before you start trading the NZD/USD currency pair, you should of course understand what the advantages of this cross are compared to other currency pairs that you can trade in the Forex market. In fact, one of the main advantages of this currency pair is that it is influenced by well-defined factors that are quite simple to analyze.

First of all, let's remember that New Zealand and its economy are closely linked to China's. But why? Simply because New Zealand is a major producer of milk powder and most of its milk powder exports go to China. So when the Chinese economy is doing well and there is GDP growth in that country, it has an impact on the health of the New Zealand economy. The demand for milk powder will indeed increase and will also lead to an increase in the NZD's value compared to other currencies. A very similar correlation can be observed with the Australian dollar, as Australia also depends to a large extent on Chinese demand, a country to which it exports more than a third of its production. As we will see below, there is a strong correlation between the NZD and AUD in terms of chart movement.

Of course, in addition to the various trade and economic indicators, including milk powder sales, there are other elements that can directly influence the NZD/USD rate, most notably the activities of the Reserve Bank of New Zealand or RBNZ. The RBNZ meets every Wednesday and their press releases are of course eagerly awaited and followed by Forex traders, especially since they most often follow the US Fed releases and the FOMC report in the US. Thus, due to the proximity of these two important releases, this time of the week is important to follow if you are investing in the NZD/USD.

We can therefore say that the main indicators to follow for the NZD are the milk index, also called GDT for Global Dairy Trade, and the communications following the RBNZ meetings. We will come back to all the most important indicators in NZD/USD trading below in detail.

 

Better understand the New Zealand Dollar or NZD trading:

The New Zealand Dollar or NZD is of course the official currency of New Zealand. It is not widely traded as it only ranks tenth in the list of most traded Forex currencies and accounts for only 2% of Forex trading. However, this is still a good performance considering that New Zealand is a small country and its economy is not one of the largest in the world.

Generally speaking, the NZD rate is influenced by two major countries, namely Australia and China. Indeed, New Zealand is located in direct geographical proximity to Australia, which of course favours trade between these two countries. Each year, more than 16% of New Zealand's exports go to Australia and 13% of its imports come from that country.

However, it is important to understand that Australia is not New Zealand's main trading partner, since it is with China that New Zealand does most of its trade. In fact, each year, New Zealand exports 20% of its goods to China and imports from this country represent 17% of total imports.

Of course, the economic influence of these two countries is not the only thing to consider if you trade the New Zealand dollar. Indeed, New Zealand's economy is also heavily influenced by agriculture. Agricultural products represent more than 50% of the country's exports, with milk exports accounting for 18%, sheep meat exports for 6%, butter exports for 5.2%, beef exports for 4.2% and cheese exports for 3.1%. However, it is mainly to China that these agricultural commodities and raw materials are exported. This makes it easier to understand the strong relationship between the Chinese economy and the evolution of the NZD.

Another interesting correlation for the NZD is with the AUD, the Australian dollar. Again due to the strong dependence of the New Zealand economy on its exports, the NZD shows a very strong sensitivity to international economic cycles. Thus, when global growth shows an interesting rise or recovery, we most often observe a rise in the NZD rate on Forex. It can thus be said that the movements of this currency are closely linked to the degree of risk-taking by investors. The NZD is therefore the opposite of a safe haven in the same way as the AUD. Thus, when the Chinese economy and the world economy are rising, these two currencies tend to appreciate and conversely when the economy is falling. The very strong correlation between the AUD and the NZD can be seen by looking at the historical charts of these two currencies. Of course, this is a positive correlation with slightly less variation for the NZD. This slight difference can be explained quite easily by the fact that the products exported by these two countries are different. Australia is primarily an exporter of metals, whereas New Zealand is an exporter of agricultural products, which are basic consumer products and are therefore less exposed to fluctuations in the global and Chinese economy.

Ultimately, the method to be applied to trade the New Zealand dollar or NZD is the same as for trading the Australian dollar or AUD with a lower volatility. We will still take into account this correlation but with a focus on the analysis of the Chinese economic health.

 

Better understand the US dollar or USD trading:

Let's move on to some information about trading the US dollar or USD. This official currency of the United States is also the first most traded currency on the Forex market and by far compared to other currencies since it generates more than 87% of the trade on this market. This is mainly due to the fact that the US dollar is also the currency of reference in international trade but also in the foreign exchange market and is considered one of the main indicators of global economic health.

Of course, the US dollar is also known as a safe haven. This means that it is capable of appreciating even in periods of intense economic crisis, as can be easily seen on the various charts. The bullish evolution of the US dollar is therefore favoured in periods of strong risk aversion as was the case in 2007/2008, at the same time as another currency considered as a safe haven, the Swiss Franc. There is a very interesting positive correlation between these two currencies.

The evolution of the US dollar against other currencies is also strongly influenced by the US economy and not only by the world economy. The economic growth of this country is in any case influenced by the world economy. However, this growth is particularly subject to economic cycles and, as a result, the country shows one of the strongest growths in the world in periods of expansion or recovery, while the negative consequences are also very strong in periods of economic slowdown or recession. Indeed, we can see that since 2009, the US economy has experienced very strong growth that can of course also be seen on the charts of the USD. This currency has indeed played its role as a safe haven and has often been positively correlated with the evolution of the US economy.

Another important factor to consider when trading the USD is of course the influence of the Fed, the US central bank. The Fed has made a lot of noise on the Forex market with the implementation of various stimulus measures after the crisis of 2008, including significant cuts in its key rates and other economic stimulus programs that have caused an increase in inflation and have therefore had a downward impact on the price of the US dollar. Thus, as can be seen from the various historical graphs, the first two Fed programmes led to a very sharp depreciation of the US dollar on the foreign exchange market, with a surprise effect in 2009 and an economy in the midst of a recession, which further increased the impact on the currency, and a second programme in 2011, this time in spite of a clear recovery of the country's economy, which still had a negative influence on the US dollar. However, we can also see that the Fed's third stimulus program had an opposite effect with an appreciation of the US dollar as these decisions were offset by a net growth in the country's economy. However, the U.S. dollar could have appreciated further during this period without the dampening effects of these decisions, which is what it will do in 2014 at the end of this stimulus program.

We can therefore conclude here that the evolution of the US dollar's price is mainly influenced by its status as a safe haven and therefore by the level of risk aversion, but also by the economic health of the USA. These two indicators alone are enough to determine the underlying trend of this currency, but we will also take into account the influence of the Fed, which can vary the amplitude and volatility.

 

Important publications to follow for analysis on the NZD/USD rate:

To effectively study the NZD/USD currency pair, you need to be able to follow the right publications at the right time. The most influential economic releases regarding these two currencies are as follows.

As for the U.S. dollar, remember that we are talking about the largest economy in the world, and thus all publications from this country are particularly followed by investors around the world. In addition, US economic publications are very frequent, with several important publications every week.

Among the most important elements are the non-agricultural wages which are published every month and the consumer price index which reflects the level of inflation. But of course, other publications are also important given the size of this country and the importance of its economy in the world. In particular, we will be following the ISM index for the Institute for Supply Management for the manufacturing and non-manufacturing sectors, the level of GDP growth, retail sales, the producer price index or PPI, ADP private payrolls, unemployment benefit claims and durable goods orders.

As far as New Zealand is concerned, the economic publications to be followed are more limited but also more targeted. In particular, we find the price of milk powder and milk which, as we have seen above, play a major role in the economic health of the country and in the evolution of the NZD. This is the GDT index, the details and evolution of which you can easily find online.

Of course, we will also follow some more basic economic indicators such as GDP growth, the inflation rate or consumer prices which are taken into consideration by the RBNZ before setting the interest rate. Of course, and as explained above, we will also follow with great care the conference during which the RBNZ answers journalists' questions after each important meeting. This analysis will allow you to learn more about how this central bank sees the future of the country's economy. These publications are indeed very important as they are followed by the major players in the Forex market.

 

Our opinion about the currency pair NZD/USD :

In conclusion, it should be noted that the NZD/USD currency pair, like all NZD pairs, is quite complex and has small margins. However, this pair is often popular with traders because of its positive swap and it is therefore possible to trade this cross solely on the basis of an interest rate differential strategy noting that the NZD interest rate is often much higher than the USD.

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