The currency of New Zealand is called the New Zealand dollar, sometimes referred to as the “kiwi”. Kiwi is usually connected with New Zealand, and the $1 coin has a kiwi on it. It is the official currency of New Zealand. The coin was minted in 1967 and divided into 100 parts or cents. Prior to 1967, the currency was known as the New Zealand pound. But since it was destroyed, it has been called the New Zealand dollar. Capping off the top 10 of the most traded currencies in the world, the Kiwi is the 10th most traded currency representing approximately 2.1% of the global currency traded. The Reserve Bank of New Zealand manages the NZD currency.

The currency falls in the bottom of the top 10 in part because it is not a major reserve currency, as its use is limited to New Zealand and minor territories.  The currency heavily relies on the balance of trade between New Zealand, and its primary trading partners Australia and China. This trade is composed mainly of agricultural produce, oil, and cars. There are more than $7.32 New Zealand Kiwis in circulation.

In this article we categorized into importance of New Zealand Dollar and How it impacts the Economy in detailed.

History of New Zealand Dollar

• The New Zealand dollar is a fairly new entrant to the world currency market, as it was only introduced in 1967. The Pound was New Zealand’s currency before the New Zealand Dollar was introduced. Since 1840, the New Zealand pound, with 1 pound = 20 shillings and 1 shilling = 12 pence.
• In 1957, the New Zealand government set up a group to investigate decimal currency, and in 1963 the government decided to decimalize the New Zealand currency.
• In 1964, the Decimal Currency Act was approved, and the transition took place on July 10, 1967. On the same date, the New Zealand Dollar was introduced, replacing the Pound at a rate of 2 Dollars = 1 Pound.

Factors Influencing NZD

New-Zealand economy is highly dependent on Commodity prices mainly leading industries including agriculture, dairy, forestry, fishing, mining and tourism. In fact, New Zealand is the world’s largest milk powder exporter, meaning that if milk prices rise, the NZD will most likely benefit. With tourism contributing about 6% to the country’s gross domestic product (GDP), the 2020 global financial crisis is likely to affect its currency as fewer tourists come to New Zealand. But it had recovered once lockdown restrictions eased.

Kiwi relationship with Aussie

The NZD/USD and AUD/USD currency pairs have a currency correlation coefficient a statistical measure of the relationship between the two currencies of 0.90. To provide context, a correlation of 1 shows a perfect positive correlation, while a correlation of -1 shows a perfect negative correlation. 

Trends of New Zealand Dollar while crisis time

Shortly before the 2008 global financial crisis, the NZD experienced a major crisis in 2007.The New Zealand dollar sold undeclared amount of up to $ 9 billion USD. This is the first government intervention in monetary policy since 1985. They followed this intervention with two successive steps. These two moves did not have the first success. In 2008 it faced a global financial crisis; The currency collapsed in the wake of the global downturn. Investors fled the currency as it was considered a risky currency at the time. However, by 2009, it had strengthened again and ended that year very strongly. Since then, it has been relatively stable.

The pandemic severely affected the New Zealand economy. In mid-March 2020, the government imposed economic locks on businesses in most countries. Exemption was given only to essential businesses such as supermarkets. However, with the speedy implementation of the rules regarding locking and corona and the restrictions were gradually removed in April, May and June. However, in September, the economy officially entered a recession. The pandemic was due to a 12.2% contraction of the country’s GDP. The severe lockdown and international travel ban imposed at the outset of the epidemic has incredibly severely affected retail, accommodation, hospitality and transportation. After facing the initial problem of Covid and lockdowns, New Zealand was able to control the virus, which led to sharp economic growth. The country ended 2020 with an economic expansion of 0.4% instead of the 1.7% contraction predicted by many economists. The V-shaped recovery led to a fall in unemployment until December 2020, down from a Covid rise of 5.3% in September 2020. Now it has been moved to a far level.

Conclusion

The NZD/USD is its most widely traded pair and the New Zealand dollar is the 10th highest trading currency in the world. New Zealand’s geography also makes it one of the best trading partners for emerging economies in Asia. So traders can use kiwi as a vehicle to showcase economic developments in fast-growing Asian markets like China. Trading the New Zealand dollar is a way of expressing an outlook on market sentiment. As Kiwi is anchored in the business cycle of the world, it allows traders to bet on a relatively liquid asset with broad-based expectations for global growth. Finally, New Zealand has relatively high interest rates compared to most developed countries. Traders can take advantage of this and implement carry-trade strategies against currencies that have a relatively low interest rate, such as the Japanese yen. Commonly traded NZD currency pairs: NZD/USD, AUD/NZD, EUR/NZD, GBP/NZD. NZD/CAD, NZD/CHF, NZD/JPY. Open Winstone Prime Account now and explore the opportunity of trading kiwi.