New Zealand Dollar Trend Analysis: Why Is the Kiwi Continually Depreciating?

New Zealand Dollar, officially known as the New Zealand dollar (currency code: NZD), is the official legal tender of New Zealand. Since 1985, New Zealand has adopted a floating exchange rate system, with the Reserve Bank ceasing to publish official exchange rates. The NZD/USD exchange rate is entirely determined by market supply and demand. As one of the top ten most traded currencies globally, the NZD/USD pair holds an important position in the international foreign exchange market.

Current Trend of the New Zealand Dollar: Falling from Highs

According to historical data, the NZD/USD exchange rate has experienced a significant downward trend. From a historical high of 0.88 USD in 2014, the NZD has fallen to above 0.5 USD, with a cumulative depreciation of about 32%. This decline reflects the profound impact of changes in the global economic environment on the fundamentals of the NZD.

Why are the NZD and AUD called “Commodity Currencies”?

Australia and New Zealand are typical export-oriented economies, with major products including coal, iron ore, copper, aluminum, wool, and dairy products. Due to their economies’ heavy reliance on commodity exports, the exchange rates of the NZD and AUD are closely linked to global commodity prices. When commodity prices rise, these currencies tend to appreciate; conversely, they tend to weaken when prices fall. This characteristic has led to the nicknames “commodity currencies” — their intrinsic value is not only backed by government credit but also derived from the actual value of their export commodities in the international market.

Four Major Factors Pressuring the NZD

Agricultural and Dairy Price Fluctuations

Agricultural products, dairy, and wool account for over two-thirds of New Zealand’s export trade. Fluctuations in international market prices for these products directly impact the country’s foreign exchange income. When global prices for agricultural products decline, New Zealand’s export revenue decreases, exerting downward pressure on the NZD.

Tourism Industry Decline

Tourism has been a vital pillar of New Zealand’s economy. Following the global pandemic outbreak, international travel demand plummeted, sharply reducing foreign exchange income from tourists, further weakening the NZD.

Federal Reserve Interest Rate Policies

The Fed’s rate hike cycle continues to exert pressure on the NZD. When US interest rates are higher than New Zealand’s, international capital tends to flow into USD assets, strengthening the dollar relative to the NZD. As a result, the NZD/USD exchange rate faces downward pressure.

Global Sudden Events Impact

As a small open economy heavily reliant on exports, New Zealand is highly sensitive to global sudden events. Geopolitical conflicts, recurrent pandemics, or trade policy adjustments can disrupt export momentum, thereby affecting the NZD’s performance.

NZD Outlook: Short-term Pressure, Long-term Uncertainty

According to forecasts from multiple investment banks, the NZD/USD pair faces downside risks in the near future. Based on relevant reports, the projections are as follows:

• Six months to one year: possibly reaching 0.593 to 0.5934
• Within two years: expected to decline to 0.5885
• Within three years: long-term target around 0.5834

These forecasts reflect market expectations of a global economic recession and concerns over New Zealand’s sluggish economic growth. As a commodity currency, the NZD’s appreciation is mainly driven by New Zealand’s economic growth and strong demand for its export commodities. In an environment of global economic uncertainty, this momentum appears insufficient.

However, it is worth noting that when demand for risk assets strengthens, commodity prices tend to rise accordingly. At such times, international investors may increase allocations to high-yield assets, potentially leading to a rebound in the NZD.

Four Ways to Invest in the New Zealand Dollar

1. NZD Fixed Deposit

Exchanging New Zealand dollars directly through a Taiwanese bank and placing a fixed deposit is the most traditional way to invest in the NZD. Investors convert TWD to NZD at the current bank rate and deposit it, earning interest until maturity, then convert back to TWD. This method has the advantage of minimal risk and familiarity, but offers relatively limited returns.

2. NZD Funds

Forex funds with NZD as the investment target are managed by professional fund managers. Due to larger exchange rate fluctuations, these funds carry higher risks and potential returns compared to traditional fixed deposits.

3. NZD Futures

NZD futures are standardized contracts traded on the Chicago Mercantile Exchange (CME), with the contract code NE. Futures can be used to go long or short, leveraging margin to amplify gains, but also increasing risks. Futures trading involves risks such as forced liquidation and margin calls; investors need strong risk management skills.

4. Contract for Difference (CFD)

CFD is a contract between buyer and seller on the price difference, without owning the physical asset. Investors only hedge against price movements. Compared to futures, CFDs require lower margin, offer higher capital efficiency, and allow flexible two-way trading, making them especially suitable for short-term and swing trading. For commodity currencies like the NZD, CFD trading can better capture profit opportunities from price movements.

Key to Grasping the NZD Trend

When investing in the NZD, closely monitor key indicators such as the interest rate decisions of the Federal Reserve and the Reserve Bank of New Zealand, global commodity prices, and New Zealand’s export data. In the current environment where the US dollar remains resilient, the NZD may face short-term challenges. However, long-term investors can consider positioning at key support levels, waiting for economic cycles to turn and for potential rebounds.