What is the outlook for the New Zealand dollar? Complete analysis, prediction, and investment strategies for the NZD trend

New Zealand Dollar (Currency code: NZD), also known as the New Zealand dollar, is one of the most traded currencies globally. Since 1985, New Zealand has adopted a floating exchange rate system, and the NZD/USD trading volume ranks ninth worldwide. The currency pair quotation unit is expressed as how many USD are needed to buy 1 NZD, for example, 1.50 indicates that 1.5 USD are required to purchase 1 NZD.

NZD Trend Analysis: From Historical Highs to Present

According to market data, the NZD/USD exchange rate has fallen from its historical high of 0.88 in 2014 to slightly above 0.5 USD, a depreciation of approximately 32%. This downward trend reflects the combined impact of multiple market factors.

AUD and NZD: The Economic Barometer’s Correlation

The AUD and NZD are often regarded as barometers of global economic growth. After the pandemic, both currencies’ USD exchange rates have declined by over 10%. Australia and New Zealand are export-oriented countries, mainly producing coal, iron ore, copper, aluminum, wool, and other bulk commodities. Australia holds a dominant position in international trade.

As a result, AUD and NZD tend to move in tandem with commodity prices, earning the nickname “commodity currencies.” The definition of commodity currencies refers to currencies that, besides government-backed credit, possess intrinsic value through commodities. Historically, gold and silver served as typical commodity currencies. Today, AUD, CAD, and NZD are representatives of modern commodity currencies.

Four Major Reasons for the Continuous Depreciation of NZD

Fluctuations in Agricultural and Dairy Product Prices

Over two-thirds of New Zealand’s exports are agricultural products, wool, and dairy, heavily relying on these commodities’ performance. As a commodity currency, rising prices of these goods usually indicate improved economic health for New Zealand. Conversely, falling prices exert downward pressure on the NZD exchange rate.

Impact of Tourism Industry Decline

Tourism is a vital pillar of New Zealand’s economy. Since the outbreak of the COVID-19 pandemic, international travel demand has sharply contracted, severely impacting New Zealand’s tourism sector, further weakening demand for the NZD.

Impact of Federal Reserve Interest Rate Policies

The NZD/USD is directly affected by changes in US interest rates. Currently, the Fed’s rate hikes have strengthened the USD, and the interest rate gap between the Reserve Bank of New Zealand and the Fed continues to widen. Under the backdrop of a stronger USD relative to NZD, the NZDUSD cross rate may continue to face downward pressure.

Global Sudden Events Impact

Any global emergency event can influence New Zealand’s export trade. As an export-driven economy, New Zealand is highly sensitive to global economic changes. The global pandemic’s impact on the country is a typical example, leading to a sustained decline in the NZD.

NZD Trend Outlook and Forecast

Due to the global economic recession pressures, there is a long-term risk of the NZD entering a bear market. While AUD and NZD are both commodity currencies and tend to move together, recent charts show a bearish sentiment, suggesting a potential short-term downtrend.

According to forecasts from major investment banks, the future NZD/USD exchange rate may trend as follows:

• Six months later: 0.594
• One year: 0.5934
• Two years: 0.5885
• Three years: 0.5834

Overall, since New Zealand’s economy is export-driven, the NZD’s appreciation is driven by economic growth and increased global demand for its products. Historically, when demand for risk assets is strong, commodity prices tend to rise, investors shift funds into gold and other commodities, and reduce USD holdings. This leads to a rapid appreciation of the commodity-based NZD against the USD.

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

Popular NZD Currency Pairs

Investors can trade major NZD pairs including:

• NZD/USD – the most mainstream trading pair
• GBP/NZD – cross currency pair
• EUR/NZD – another cross currency pair

Four Ways to Invest in NZD

1. NZD Fixed Deposit

The NZD is a legal international currency available for exchange at banks. Investors can convert their local currency into NZD at the current exchange rate and deposit it as a fixed-term deposit. Upon maturity, they can convert back at the prevailing rate and earn interest. The advantages are low risk and familiar operation; the downside is relatively lower returns.

2. NZD Funds

Forex funds investing in New Zealand dollars are managed by professional fund managers. Compared to fixed deposits, these are more volatile, with higher risk and potential returns.

3. NZD Futures

NZD futures are a type of foreign exchange derivative contract. Futures specify that both parties agree to transact at a predetermined future date and price. Traded on the Chicago Mercantile Exchange (CME), the contract code is NE, with a minimum tick size of 0.0001 points.

Futures are margin trading instruments, allowing both long and short positions. At settlement, positions are forcibly closed, with potential for margin calls or liquidation.

4. Contract for Difference (CFD)

CFDs are popular among retail investors worldwide. They are contracts between buyers and sellers regarding the price difference of an asset, where the seller pays the difference in cash. No physical delivery of the underlying asset occurs.

Compared to futures, forex CFDs require less margin, offer higher capital efficiency, and theoretically have no delivery date, allowing long-term holding. CFDs support two-way trading—long and short—making them especially suitable for commodity currencies like NZD, which have relatively predictable trends. Investors can profit through short-term trading and bidirectional positions.

List of Tradable NZD Currency Pairs

Investors can trade the following NZD pairs:

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

Before investing in NZD, it is recommended that investors thoroughly understand the factors influencing NZD trends and choose suitable investment tools based on their risk tolerance. Keeping a close eye on policy decisions from the Federal Reserve and the Reserve Bank of New Zealand is crucial for accurately grasping NZD movements.