New Zealand may not rank as among the biggest nor the most powerful countries in the world, but its dollar currency holds a significant position in the currency exchange market. This is the reason why traders are also fond of following the NZD/USD currency pair.
Known as the "Kiwi", named after the flightless bird endemic to New Zealand and the same one featured on NZ's 1$ coin, this currency pair is considered as among the major currency pairings in the world.
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History of the NZD/USD
The New Zealand dollar is a young currency having only introduced in 1967 after it replaced the New Zealand pound that was used as the nation's currency since 1933.
When it was launched on July 10, 1967 or the "Decimal Currency Day" in New Zealand, the NZD debuted with a rate of $1.43 US$ to 1 NZ$.
During the global recession in the early 2000's, the New Zealand dollar suffered a 50% drop against the Japanese Yen. Fortunately, the NZD has gained ground in the coming years thus earning a status as among the most high-yielding currency in the FX market.
Understanding the NZD/USD Price
The price quote for the NZD/USD currency pair denotes how much US dollars are required to purchase one New Zealand dollar.
For example, if the pair is trading at 0.75, it implies that it cost 0.75 US dollars to buy 1.00 New Zealand dollar.
The New Zealand dollar is widely referred to as a "carry trade" currency, because it is a relatively high-yielding currency. This influences traders into buying the NZD and fund it with a lower yielding currency like the Swiss Franc or the Japanese Yen.
What is a "Carry Trade"?
Carry trade is a trading strategy involving borrowing on a low-interest rate and then investing on an asset which delivers a higher rate of yield. A carry trade is usually dependent on low-interest rate currency borrowings before converting the borrowed fund into another currency.
Please remember: The base currency of these two is fixed and signifies one unit. Therefore, the intensity of weakening and strengthening is not reflected in the value. The NZD/USD rate can soar because of two reasons; either the USD is got weaker or the EURO trended upward. Both conditions result in an increased price and an equivalent movement in the forex chart.
What Influences the NZD/USD Price?
Similar to other currency pairs, the NZD/USD also performs with volatility as influenced by a number of factors, among them are:
- Agriculture Industry: Since New Zealand is highly dependent on this industry being the world's biggest exporter of powdered milk. Agriculture, particularly the dairy industry drives the country's economy as well as the performance of its national currency, the New Zealand dollar.
- Tourism: Another huge slice of New Zealand's economy benefits from its tourism industry. Made more popular by the Lord of the Rings trilogy, tourism has been on an upswing in the last several years resulting in the good performance of the NZ$.
- Both Countries' Interest Rates: The Reserve Bank of New Zealand and the Federal Reserve of the United States can also control the trajectory of both countries' currency with the interest rates it can implement. Interest rates is used as a tool to strengthen the economy but sometimes it also causes to weaken the economy depending on the current economic outlook.
- Economic Research: New Zealand relies heavily on research-driven economic reports because of its small population. These researches can either weaken or strengthen the country's currency depending on the current economic needs.
- Other factors also include the GDP of both nations, Consumer Price Index (CPI) of the two countries, the Producer Price Index, Employment changes, trade balance and political events on both the United States and New Zealand.
Who Should Consider the NZD/USD Currency Pair?
This pair is a good choice for currency traders because the NZD is widely perceived as a high-yielding currency. It is usually traded by traders against low-yielding currencies such as the Swiss Francs and the Japanese Yen. Since both currencies are influenced by a variety of factors outside of the USD, the NZD/USD pair is seen as a good call to diversify an FX portfolio.
Traders of the Australian dollar should also look closely at the NZD/USD because both the AUD and NZD typically moves in tandem. Other type of investors who should consider this pair are day traders who capitalizes on price swings of currencies happening in a single day and keen market analysts who are updated with the current financial and currency market reports.
What Makes the NZD/USD a Good Addition to Your Forex Portfolio?
The pairing of the world's top performing currency, the US dollar and the high-yielding currency of the New Zealand dollar makes the NZD/USD a winning currency pair for most of its tenure in the FX market. Another reason why traders trust this pair is the long-standing stability and economic growth in the two countries.
Trading NZD/USD via CFD
An easier and more accessible way to trade currency pairs such as the NZD/USD is through CFD trading. Contract-for-difference (CFD) involves speculating on the price difference of an asset between the start and end of the trade. CFD is a financial instrument brokered between a broker and a trader or investor, where one party agrees to pay the other party the difference in the price of the asset between the beginning and conclusion of the trade.
Why Trade Currency Pairs in eToro?
eToro’s user-friendly interface and innovative trading platform permits traders to trade on their own time with zero transaction fees on currency trades. eToro also allow traders to trade for $30 for every $1 in their portfolio because it gives out a x30 leverage for currency pairs.
How to Trade NZD/USD Currency Pair on eToro?
- Login or create an account with eToro if you don't have one.
- Click "Discover".
- Select "Currencies".
- Choose "NZDUSD".
- Choose "BUY" or "SELL" depending on the how you wish to trade.
- Enter an amount or number of units you wish to trade.
- Set the stop loss, leverage, and take profit parameters.
- Click "Open Trade".
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