Will the New Zealand dollar continue to depreciate? In-depth analysis of the NZD trend and investment guide

What is the New Zealand Dollar? Fundamental Introduction

New Zealand Dollar, NZD is the currency of New Zealand. In 1985, New Zealand adopted a flexible exchange rate system, making the NZD one of the most traded currencies in the world, with NZD/USD ranking ninth in global trading volume. The currency pair quote is expressed as X dollars per 1 New Zealand dollar, for example, a price of 1.50 means it takes 1.5 USD to buy 1 NZD.

According to market data, the NZD/USD exchange rate has declined from a historical high of 0.88 in 2014, currently slightly above 0.5 USD, representing approximately a 32% depreciation of the New Zealand dollar against the US dollar.

The Special Relationship Between the New Zealand Dollar and the Australian Dollar: Commodity Currency Attributes

The AUD and NZD are often seen as barometers of global economic growth. After the pandemic, the global economy has been heading into recession, with both currencies depreciating against the US dollar by over 10%.

Australia and New Zealand are both export-oriented countries, mainly producing coal, iron ore, copper, aluminum, wool, and cotton textiles. Due to this economic structure, the AUD and NZD tend to move in tandem with commodity prices, earning the nickname “commodity currencies.”

The concept of commodity currencies originally referred to currencies backed by physical commodities, with intrinsic value beyond government credit. Historically, gold and silver served as typical commodity currencies. Today, the AUD, CAD, and NZD are representatives of modern commodity currencies.

Four Core Factors Contributing to the Continuous Depreciation of the NZD

First: Fluctuations in agricultural and dairy product prices

Over two-thirds of New Zealand’s exports are agricultural products, wool, and dairy, making its economy highly dependent on international market prices for these commodities. As a commodity currency, changes in these prices directly influence the NZD’s movement; rising prices indicate economic strength, while falling prices lead to currency depreciation.

Second: Severe impact on the tourism industry

Tourism is another major pillar of New Zealand’s economy. Post-pandemic, the tourism sector has been severely hit, with a sharp decline in international visitors leading to a significant drop in foreign exchange income, exerting long-term pressure on the NZD.

Third: Federal Reserve rate hikes strengthening the USD

The NZD/USD trend is directly affected by the US Federal Reserve’s interest rate policies. Currently, rate hikes by the Fed are strengthening the USD, with the interest rate differential between the Reserve Bank of New Zealand and the Fed continuing to widen. As the USD appreciates against the NZD, the NZDUSD cross rate may continue to decline.

Fourth: Global unexpected events

Any global unforeseen events can impact New Zealand’s export trade. As an economy heavily reliant on exports, disruptions such as pandemics or geopolitical crises can exert sustained downward pressure on the NZD.

Future Outlook and Analysis of the NZD

In the long term, under the backdrop of a global recession, the NZD may enter a bear market. Although the AUD and NZD are both commodity currencies and tend to move together, recent charts show more bearish sentiment, suggesting a possible further decline in the short term.

According to forecasts from major investment banks, the NZD/USD exchange rate is expected as follows:

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

Potential Drivers for the NZD’s Rebound

Historical experience shows that the NZD’s rise is driven by New Zealand’s economic growth and higher demand for its products, which boosts GDP. When demand for risk assets is strong, commodity prices tend to rise, prompting investors to shift funds into higher-yielding assets like gold and commodities, while selling lower-yielding USD. This results in a rapid appreciation of the commodity-based NZD against the USD.

Currently, the USD still demonstrates resilience amid market volatility. Traders should continue to monitor key policy decisions from the Federal Reserve and the Reserve Bank of New Zealand.

Common Investment Methods for the NZD

1. NZD Fixed Deposit

The NZD is a legal tender and can be exchanged at local banks. Convert local currency to NZD at the current exchange rate and deposit into a fixed-term account. Upon maturity, convert back at the prevailing rate and earn interest in NZD. Advantages include low risk and familiarity; disadvantages are relatively lower returns.

2. NZD Funds

NZD funds are forex funds investing in New Zealand dollars, managed by professional fund managers. Due to volatile exchange rates, risks and returns are both relatively high.

3. NZD Futures

NZD futures are derivative contracts based on the foreign exchange market, traded on the Chicago Mercantile Exchange (CME), with the product code NE. The minimum tick size is 0.0001, with a minimum tick value of $10, and physical delivery is available.

Futures are margin trading instruments, allowing both long and short positions. Settlement at expiration depends on the broker’s procedures, with risks including forced liquidation, margin calls, or even account wipeouts.

4. Contract for Difference (CFD)

CFDs are contracts between buyers and sellers based on the price difference of an underlying asset, with the seller paying the buyer the difference between the contract price and settlement price in cash. The process does not involve physical trading of the commodity, making it especially suitable for forex trading.

Compared to futures, CFDs require less margin, offer higher capital efficiency, and maximize leverage. In theory, there is no fixed delivery date, so positions can be held indefinitely without rollover issues. CFDs can be long or short, making them particularly suitable for short-term trading of trending commodity currencies like the NZD.

Mainstream Trading Currency Pairs for the NZD

• NZD/USD: The most popular NZD trading pair
• AUD/NZD: Cross rate between the AUD and NZD
• GBP/NZD: British Pound against NZD
• EUR/NZD: Euro against NZD
• NZD/JPY: NZD against Japanese Yen
• NZD/CHF: NZD against Swiss Franc
• NZD/SGD: NZD against Singapore Dollar
• NZD/CAD: NZD against Canadian Dollar

Conclusion

The future trend of the NZD depends on the pace of global economic recovery, commodity price performance, and central bank policies. Investors trading the NZD should closely monitor the policies of the Reserve Bank of New Zealand, the Federal Reserve, international commodity price fluctuations, and the global economic situation, adjusting their trading strategies flexibly. Regardless of the investment method chosen, risk management and continuous learning are the foundations of long-term profitability.