The New Zealand Dollar (NZD) is the official currency of New Zealand. Its nickname “Kiwi” comes from the kiwi bird depicted on one side of the $1 coin. The flightless bird is indigenous to the country and a national symbol. In the foreign exchange market, the Kiwi is sensitive to changes in global demand and commodity prices since New Zealand’s economy depends on agriculture and exports. If you are an investor or a business engaged in international trade or investment with New Zealand, then understanding and monitoring the Kiwi’s performance is crucial.
Reserve Bank of New Zealand (RBNZ)
The Reserve Bank of New Zealand is New Zealand’s central bank and was established in 1934. The original NZD notes had a variety of designs, including that of a kiwi, the nation’s Coat of Arms, Maori King Tawhiao, and Fiordland’s Mitre Peak.
Like most central banks, the Reserve Bank is mainly a policy organisation which aims to develop and implement monetary policy, promote a stable and solid financial system and meet the public’s currency needs.
Who is the Governor of the RBNZ?
Adrian Orr was appointed in 2018 as the Governor of the Reserve Bank of New Zealand. He graduated from the University of Waikato in 1983 with a Bachelor of Social Sciences, majoring in Economics and Geography. He also graduated in 1985 with a Master’s Degree in Development Economics from the University of Leicester, England. He has served as Chair of the International Forum of Sovereign Wealth Funds, and Chair of the Pacific Pension and Investment Institute.
What affects the NZD/USD?
A variety of factors influence the value of the New Zealand dollar and the US dollar in relation to each other and other currencies. When considering the specific currency pair, one of the main reasons to influence its price is the interest rate differential between the Reserve Bank of New Zealand (RBNZ) and the Federal Reserve (Fed).
- When the Fed intervenes in the market to support the greenback, the value of the NZD/USD cross tends to fall, as the USD strengthens against the New Zealand dollar.
- The NZD/USD has a positive correlation to the Australian dollar (AUD/USD), which means that when the NZD strengthens, the AUD does too, and vice versa.
- The New Zealand dollar is viewed as a currency popular for carry trades due to its comparatively attractive yield. This means that investors prefer to buy the NZD and finance it using a lower-yielding currency like the Japanese yen or the Swiss franc.
- Dairy prices also affect the Kiwi. New Zealand is one of the world’s biggest exporters of whole milk powder. If milk prices increase, the possibly the New Zealand economy is doing well, which in turn offers support to the NZD.
- Tourism also has a major impact on the NZD, since it is a crucial part of the New Zealand economy. If the number of visitors to New Zealand rises, then that means the economy is growing and the NZD rises.
Why is the NZD considered a stable currency?
While the currency tends to fluctuate, overall, the Kiwi is seen as a stable currency because the economy of New Zealand and its outlook are strong. As mentioned, tourism is key for the New Zealand economy and as it increases, the currency gets stronger too. The NZD is also strong when other economic indicators are positive such as the growth rate, GDP, unemployment, and inflation.