Will the New Zealand dollar continue to depreciate against the US dollar? A ten-year exchange rate trend analysis and investment strategy

Basic Knowledge of the New Zealand Dollar

The New Zealand dollar, also known as NZD, is the official currency of New Zealand. As early as 1985, New Zealand implemented a floating exchange rate system, with the Reserve Bank of New Zealand ceasing to publish official rates and decoupling from the trade-weighted basket of currencies. As one of the most traded currencies globally, NZD/USD ranks ninth in the international foreign exchange market. If the currency pair is quoted at 1.50, it means 1.5 US dollars are needed to exchange for 1 New Zealand dollar.

Ten-Year Trend Review: From Peak to Trough

Looking at the exchange rate chart over the past ten years, the New Zealand dollar against the US dollar has experienced significant volatility. After reaching a historical high of 0.88 USD in 2014, the NZD gradually declined and has now fallen above 0.5 USD, a depreciation of about 32%. This long-term downward trend is not accidental but the result of multiple factors working together.

Four Fundamental Reasons for the NZD Depreciation

Direct Impact of Commodity Price Fluctuations

The New Zealand dollar and the Australian dollar are often referred to by investors as “global economic barometers.” Both countries are export-driven economies, mainly exporting coal, iron ore, copper, aluminum, wool, and other raw materials. In New Zealand’s export commodities, agricultural products, dairy, and wool account for more than two-thirds. Since commodity prices are positively correlated with these currencies, when international commodity prices come under pressure, the NZD also depreciates accordingly.

Continued Decline of the Tourism Industry

Tourism income is another pillar of New Zealand’s economy. After the global pandemic outbreak, international travel was severely impacted, with a sharp decline in foreign visitors, directly weakening the NZD’s support.

Constraints from the Federal Reserve’s Rate Hike Cycle

The interest rate gap between the US dollar and the NZD continues to widen. As the Federal Reserve raises interest rates, the US dollar strengthens relative to the NZD, while the Reserve Bank of New Zealand’s policies lag behind, putting pressure on the NZD/USD cross rate. A strong US dollar is a negative factor for any non-US currency.

Impact of Global Sudden Events

New Zealand relies heavily on international trade, and any global crisis can disrupt its export rhythm. The pandemic is a typical example, causing sustained damage to this outward-oriented economy.

Exchange Rate Forecast Analysis

According to the forecasts of major investment banks, the expected path of NZD/USD in the future is as follows:

• Half a year later: 0.594
• One year later: 0.5934
• Two years later: 0.5885
• Three years later: 0.5834

In the long term, against the backdrop of slowing global economic growth, the risk of the NZD entering a bear market cannot be ignored. In the short term, market bearish sentiment is strong, and the depreciation trend may continue.

However, it is important to note that when global risk assets are in high demand, commodity prices tend to rise, and investors may increase their holdings of the NZD. In such cases, commodity-based NZD could appreciate rapidly. Currently, the US dollar demonstrates resilience amid market volatility, and traders should closely monitor the policies of the Federal Reserve and the Reserve Bank of New Zealand.

Four Common Investment Channels

1. Fixed Deposits

The most straightforward way is to deposit NZD in a bank. Convert TWD to NZD at the current exchange rate, deposit as a fixed-term deposit, and upon maturity, receive NZD interest income, then exchange back to TWD at the prevailing rate. The advantage is low risk and familiar operation; the downside is limited returns.

2. Forex Funds

Forex funds invest in NZD as the target asset, managed by professional fund managers. The exchange rate volatility is higher, increasing both risk and potential returns.

3. Futures Contracts

NZD futures are listed on the Chicago Mercantile Exchange (CME), with the product code NE. Futures are derivative financial instruments that support both long and short positions but carry the risk of margin calls. The margin system allows investors to leverage small amounts for large positions but requires strict risk management.

4. Contract for Difference (CFD)

CFDs are contracts between buyers and sellers based on the price difference, without physical delivery. Compared to futures, CFDs require lower margin, have higher capital efficiency, and can be held indefinitely. For relatively predictable commodity currencies like the NZD, the two-way trading feature of CFDs helps seize opportunities in both rising and falling markets.

Investment Insights from the Ten-Year Trend Chart

By observing the ten-year exchange rate chart of the NZD, one can see a typical pattern of long-term depreciation with short-term volatility. Investors trading NZD should pay attention to the prices of New Zealand export commodities, global economic indicators, and the Federal Reserve’s policy directions, as these often signal the turning points of the NZD.

Popular NZD trading pairs include NZDUSD (NZD/USD), GBPNZD (GBP/NZD), and EURNZD (EUR/NZD). Regardless of the investment method, understanding the NZD as a commodity currency and its relationship with commodity prices is key to making accurate judgments.