Why is the New Zealand dollar continuously falling? New Zealand dollar trend analysis and investment guide

Basic Features of the New Zealand Dollar

New Zealand Dollar (NZD) is one of the most actively traded currencies worldwide, with the NZD/USD currency pair ranking ninth in global forex trading volume. Since 1985, New Zealand has adopted a floating exchange rate system, with the Reserve Bank of New Zealand ceasing to quote official buy and sell prices. The value of the NZD is entirely determined by market supply and demand.

As a unique financial instrument, the NZD is a typical example of a commodity currency. Commodity currencies are those that, besides government credit backing, possess intrinsic value. Like the Canadian dollar and Australian dollar, the NZD exhibits a close positive correlation with commodity prices.

Review of the NZD Trend

According to market data, the NZD/USD exchange rate has fallen from a historical high of 0.88 USD in 2014 to slightly above 0.5 USD currently, representing a depreciation of approximately 32%. This means the cost to buy NZD with USD has significantly decreased, reflecting a trend of relative depreciation of the NZD in the international market.

Why Has the NZD Been Falling?

The persistent decline of the NZD is driven by several deep-rooted reasons:

Fluctuations in Export Commodity Prices

New Zealand’s economy heavily relies on exports, with over two-thirds of its exports consisting of agricultural products, dairy, and wool. Declines in international prices for these primary commodities directly weaken New Zealand’s trade income, exerting downward pressure on the NZD exchange rate. When commodity prices rise, the NZD often appreciates due to positive economic growth expectations; conversely, it depreciates when prices fall.

Impact of Tourism Industry Decline

Tourism is another major pillar of New Zealand’s economy. The global COVID-19 pandemic severely impacted the tourism sector, drastically reducing international visitors and foreign exchange income, which further intensified the downward pressure on the NZD.

US Dollar Appreciation and Interest Rate Environment

The Federal Reserve’s rate hikes have strengthened the US dollar. The widening interest rate gap between the Reserve Bank of New Zealand and the Federal Reserve causes investors to prefer holding USD assets over NZD assets. When the USD strengthens, the NZD/USD cross rate faces downward pressure.

Chain Reactions from Global Emergencies

As an economy highly dependent on exports, New Zealand is extremely sensitive to major global emergencies. Any international geopolitical shifts or trade disruptions can directly impact its commodity exports, thereby affecting the NZD exchange rate. Supply chain disruptions during the pandemic are a typical example.

The Correlation Between the NZD and AUD

The Australian dollar and the NZD are often seen as barometers of global economic growth. Both countries are export-oriented economies, mainly exporting coal, iron ore, copper, aluminum, wool, and other commodities. Due to this characteristic, the AUD and NZD show a high correlation with commodity prices, often moving in the same direction. After the pandemic, both currencies depreciated against the USD by over 10%, confirming the negative impact of global economic recession on commodity currencies.

Future Outlook for the NZD

Medium to Long-Term Outlook

Given the global economic recession risks, the NZD may enter a bear market in the long term. According to forecasts from major investment banks:

• Six-month target: 0.594
• One-year target: 0.5934
• Two-year target: 0.5885
• Three-year target: 0.5834

These forecasts reflect widespread market expectations of continued decline for the NZD.

Factors Influencing Future Trends

The future movement of the NZD depends on multiple variables: New Zealand’s economic growth, demand for commodity exports, and policy directions of the Federal Reserve and the Reserve Bank of New Zealand. When demand for risk assets is strong, commodity prices tend to rise, prompting investors to buy higher-yielding assets (like gold and other commodities) and sell lower-yielding USD, which can lead to NZD appreciation. Currently, the USD remains resilient amid market volatility, so traders should closely monitor key policy decisions by the Fed and RBNZ.

Major Currency Pairs for Trading the NZD

• NZD/USD: The most active NZD trading pair
• GBP/NZD: Major currency pair between the UK and New Zealand
• EUR/NZD: Eurozone and New Zealand trading pair
• AUD/NZD: Commodity currency pair between Australia and New Zealand
• NZD/JPY
• NZD/CHF

Main Ways to Invest in the NZD

1. Bank NZD Fixed Deposits

Exchange TAIWAN dollars to NZD at the current bank exchange rate and deposit into a fixed-term account. Upon maturity, receive NZD interest income, then convert back to TWD at the prevailing rate. This method has lower risk but offers limited returns, suitable for conservative investors.

2. NZD Investment Funds

Forex funds that directly invest in NZD, managed by professional fund managers. Due to significant exchange rate volatility, the fund’s net value is heavily influenced by currency fluctuations, resulting in higher risk and potential returns.

3. NZD Futures

NZD futures are traded on the Chicago Mercantile Exchange (CME), with the product code NE. The minimum tick size is 0.0001, with a tick value of $10, and physical delivery is used. Futures are margin trading instruments that can be long or short, but carry risks of margin calls and liquidation. Traders must settle at the specified date according to regulations.

4. Contract for Difference (CFD)

CFDs are agreements between buyers and sellers on the price difference of an underlying asset and its settlement price, without physical delivery. Compared to futures, CFDs require less margin, offer higher capital efficiency, and allow for leveraged trading. CFDs theoretically have no expiration date, can be held indefinitely, and support both long and short positions, making them especially suitable for traders with clear directional views on the NZD for short-term trading.

Summary

The reason why the NZD has been falling fundamentally stems from New Zealand’s economic characteristics as a commodity currency issuer. Declining export commodity prices, tourism downturns, US dollar appreciation, and global economic uncertainties have intertwined to drive the long-term depreciation of the NZD. Its future trend will mainly depend on the global economic recovery, commodity price performance, and central bank policies. Investors should consider these macro factors comprehensively and choose investment methods aligned with their risk tolerance when trading the NZD.