The Insider’s Guide to New Zealand’s Currency

The New Zealand dollar, also known as the “kiwi,” is the national currency of New Zealand. In 1967, the currency was decimalized and divided into 100 cents. The currency was known as the New Zealand pound until it was decimalized.

The New Zealand dollar is the currency of New Zealand. New Zealand, Tokelau, Pitcairn Islands, Niue, and the Cook Islands all use the currency. $5, $10, $20, and $50 bills are available, while 10c, 20c, and 50c coins are available. $1 and $2, respectively. Agriculture prices, tourism numbers, and RBNZ decisions influence the New Zealand currency. Investors have embraced the New Zealand dollar as a carry trade currency during the past decade.

Background Information On The New Zealand Currency

The NZD or NZ$ symbol is used to represent the New Zealand dollar. On March 4, 1985, the New Zealand dollar was introduced, with an initial exchange rate of 44 cents to the US dollar. The currency’s value has been determined by the financial markets since then, with the unit typically ranging between 39 and 88 cents per dollar.

The kiwi is the official currency of Tokelau, Pitcairn Islands, Niue, and the Cook Islands, as well as New Zealand. $5, $10, $20, $50, and $100 bills are available in New Zealand, while 10c, 20c, 50c, $1, and $2 coins are available.

Banknotes From New Zealand

The New Zealand government has been producing polymer or plastic versions of the New Zealand dollar since 1999, making the bills safer against counterfeiting. The new polymer composition has also boosted the banknotes’ lifespan, with polymer bills lasting four times longer than normal linen or paper bills.

Polymer banknotes, interestingly, maybe washed without causing any damage to the substance. The Reserve Bank of New Zealand (RBNZ) upgraded the money in 2015, giving it even more vibrant colors and improved security measures.

The NZD’s Impact On The Reserve Bank Of New Zealand

The Reserve Bank of New Zealand (RBNZ) is the country’s central bank, in charge of making monetary and fiscal policies that affect New Zealand’s currency. The RBNZ holds monetary policy meetings seven times a year to ensure price stability, set interest rates, and monitor exchange rates. It is currently led by Adrian Orr.

Factors Affecting The New Zealand Dollar

New Zealand is rich in natural resources, with agriculture, dairy, forestry, fishing, mining, and tourism among the country’s leading sectors. New Zealand is one of the world’s largest producers of whole milk powder, thus if milk prices rise, the NZD will almost certainly benefit. Because tourism contributes for around 6% of the country’s GDP, the COVID-19 epidemic could have an influence on the country’s currency as fewer tourists visit New Zealand.

Relationship Between The New Zealand Dollar And The Australian dollar

Australia is New Zealand’s second-largest commercial partner (behind China), accounting for 13.6 percent of the country’s total exports. As a result, the New Zealand dollar is heavily influenced by the performance of Australia’s economy.

The currency correlation coefficient (a statistical measure of the relationship between two currencies) for the NZD/USD and AUD/USD currency pairs is 0.90. A complete positive correlation is represented by a correlation of 1, whereas a perfect negative correlation is represented by a correlation of -1.

The Carry Trade And The New Zealand Currency

Traders and investors have embraced the New Zealand dollar as a carry trade currency throughout the last decade due to the country’s higher interest rates than other wealthy countries.

The carry trade is one of the most often used currency trading methods. Buying a high-yielding currency and funding it with a low-yielding currency is all it takes to execute a carry trade.

Traders that use the kiwi to conduct a carry trade buy the New Zealand dollar and sell a lower-yielding currency like the Japanese yen, with the goal of profiting from the interest rate disparity.

New Zealand carry trade has recently become much less enticing as the Reserve Bank of New Zealand (RBNZ) has aggressively slashed interest rates to combat weak economic growth and low inflation.

The Carry Trade 

The carry trade is one of the most often used currency trading methods. Putting on a carry trade is as simple as purchasing a high-yielding currency and funding it with a low-yielding currency, as in the proverb “buy low, sell high.”

Because the interest rate spreads on currency pairings like the Australian dollar/Japanese yen and the New Zealand dollar/Japanese yen are so wide, the most popular carry trades involve buying them. Finding out which currency offers a high yield and which currency offers a low yield is the first stage in putting together a carry trade.

FX Street updates the interest rates for the world’s most liquid currencies on a regular basis.

You can mix and match the currencies with the highest and lowest yields if you keep these interest rates in mind. Interest rates might change at any time, therefore forex traders should keep up to date by visiting their respective central banks’ websites.

It’s no surprise that the AUD/JPY is the poster child of carry trades, given that New Zealand and Australia have the highest yields on our list and Japan has the lowest. Because currencies are exchanged in pairs, all an investor needs to do to enter a carry trade is purchase NZD/JPY or AUD/JPY using a forex trading platform and a forex broker.

The low borrowing cost of the Japanese yen is a unique feature that has been used by equity and commodity traders all over the world. Investors in other markets have begun to use their own versions of the carry trade, such as shorting the yen and purchasing the U.S. or Chinese stocks, over the last decade. This previously drove a massive speculative bubble in both markets and explains why carry trades and stocks have such a strong association.

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