Forex Marketing in New Zealand

New Zealand is a welcoming, diverse country with a history of Māori, European, Pacific Island, and Asian immigration. This rich mix of cultures, combined with geologically absorbing environmental and unique flora and fauna, make New Zealand an exciting country to explore. If youve watch a movie named “ The Lord of the Rings”, then you probably know that Middle Earth is located somewhere along the hills of New Zealand.

Apart from being home to Frodo Baggins and his hobbit friends, another interesting review about New Zealand is, it is one of the closet neighbors of Australia in Oceania, the Southern side

of the Pacific Ocean.

New Zealand is made up of two major land masses (North Island and South Island) and a number of smaller islands including Stewart Island located in the southwestern Pacific Ocean. The two main islands are divided by a 22km extend of water called the Cook Strait.

It was known to be Famous for hosting a larger population of sheep than people, New Zealand is home to about four million residents. To put that into perspective, New York City alone had a population of 8.4 million people. New Zealand, popularly called as Aotearoa, which means “Land of the Long White Cloud” in Maori, one of the major languages in the country.

New Zealand: Facts, Figures, and Features

• Neighbors: Australia, Fiji, Tonga

• Size: 104,483 square miles

• Population: 4,537,081 (123rd)

• Density: 42.7 people per square mile

• Capital City: Wellington (city population 179,466)

• Head of State: Queen Elizabeth II

• Head of Government: Prime Minister Jacinda Ardern

• Currency: New Zealand dollar (NZD)

• Main Imports: machinery and equipment, vehicles and aircraft, petroleum, electronics, textiles, plastics

• Main Exports: Hobbits, Russell Crowe, Ores, and metals; wool, food and live animals; fuels, machinery for transport, in addition to other equipment

• Import Partners: China 16.4%, Australia 15.2%, US 9,3%, Japan 6.5%, Singapore 4.8%, Germany 4.4%

• Export Partners: Australia 21.1%, China 15%, US 9%, Japan 7%

• Time Zone: GMT +12

• Website: https://www.govt.nz/

Economic Overview

It is the 52nd-largest national economy in the world when measured by nominal gross domestic product (GDP) and the 63rd-largest in the world when measured by purchasing power parity (PPP). New Zealand has a large GDP for its population of 5 million, and sources of revenue are spread all over the large island country. Irrespective of it's teeny-tiny population. But never underestimate New Zealand… This country makes up for its size by being a strong player in trade!

Their economic project is largely a trade dependent country, mostly with the Land Down Under (Australia), the Land of the Rising Sun (Japan), and Uncle Sam (U.S.).

It is an export-driven economy, with its main exports like ores, metals, and wool comprising a third of its GDP. It exports much of its cattle and dairy products.

New Zealand's free trade economy is dependent on International trade, with the principal export industries being agriculture, horticulture, fishing, forestry and mining. The major export allies are New Zealand's trans-tasman neighbors, Australia, and the USA, United Kingdom and Japan. China and Asian markets are increasingly export destinations.

For that reason, its imports from other countries comprise mostly of heavy machinery, equipment, vehicles, and electronic products. Since the country has removed many barriers to foreign investment, the World Bank has praised New Zealand for being one of the most business-friendly countries in the world, second to Singapore.

Monetary & Fiscal Policy

The Reserve Bank of New Zealand (RBNZ) is in charge of the financial or financial and fiscal policy of the country.

Currently headed by Adrian Orr as the Governor of the Reserve Bank of New Zealand, the RBNZ holds or financial policy meetings eight times a year. The RBNZ is tasked with maintaining price stability, setting the gain profits / interest rates, and monitoring output and exchange rates.

In order To achieve price stability, the RBNZ must ensure that annual inflation meets the 1.5% central bank target… otherwise, the government has the right to kick the RBNZ Governor out of office (Were not kidding). The RBNZ has the following tools in its financial policy arsenal:

The official cash rate (OCR), which affects short-term interest rates, is set by the RBNZ Governor.

Also By lending 25 ground points over this rate, then borrowing at 25 basis points that is below the OCR to commercial banks, the central bank is able to control the interest rates that is mean to sole and businesses.

Open market operations are used to meet the cash target or the amount of reserves parked in commercial banks. And By forecasting the cash target daily, the RBNZ is able to calculate how much money to inject into the economy in order to meet the target.

Getting to Know the NZD

The New Zealand dollar (NZD) is the official currency of New Zealand. NZD is made up of 100 cents and is often represented by the symbol $ or NZ$ to set it apart from other currencies based on dollars. NZD sees use in the Cook Islands, Niue, Tokelau, and the Pitcairn Islands.

The New Zealand dollar using a common language is mention as the “kiwi,” a flightless bird native to New Zealand that emerged on the countrys $1 coin. Although sometimes denoted as NZ$, the kiwi dollar is more commonly shown with a simple $ sign.

Show me the commodities!

Because the New Zealand‘s economy is mostly and dependent on its exports of commodities and agricultural products, the overall economic performance of the side is linked to commodity prices. When the commodity prices rise, then the amount of money paid for New Zealand’s exports as well rises , which then makes a larger contribution to the countrys GDP. Since a higher GDP reflects a strong economic performance, it could lead to an appreciation of the Kiwi. Contrarily, falling commodity prices derive in a lower financial value of exports, making a smaller contribution to GDP. A lower GDP could then cause the Kiwi to depreciate.

I move hand-in-hand with the AUD

Because Australia is New Zealand‘s number one trade partner, the economic performance of Australia has a giant impact on New Zealand’s. For example, if the Australian economy does great, Australian firms pump up their importing projects, and guess who benefits from that？ New Zealand!

and, just like the AUD, I enjoy carry trades!

Similar to Australia, New Zealand enjoys higher interest rates compared to other major economies, like the U.S., the U.K., or Japan. Interest percentage differentials between economies often act as signs of money flows.

As the investors choose to receive higher returns, they would sell lower-yielding investments in exchange for higher-yielding property or currencies. In other words, the higher the interest rate, the more money flows in.

I'd like more migration, please.

As a results of few population of New Zealand compared to even half the number of people living in New York City, an increase in migration into the country has a giant effect on the economy. This is due to the population grows, which causes the demand for goods and overall consumption increases.

I'm weather-sensitive too.

New Zealand‘s economy too is largely driven by its agricultural industry, which means that severe weather conditions like droughts have a large negative effect on their entire economy. Those heatwaves are also common in Australia, which is more frequented by forest fires, costing close to 1% of its GDP in spoil. This doesn’t do the NZD any good…

Important Economic Indicators for the NZD

• Gross Domestic Product – Just like every other country, the gross domestic product (GDP) act as an economic report card for New Zealand. By acting as a gauge of overall economic performance for New Zealand, it effects the demand for the NZD.

• Consumer Price Index (CPI) – The consumer price index measures the change in price levels. As a measure of inflation, it is closely watched by the RBNZ in determining changes in financial policy. Theyre supposed to maintain price stability, remember？

• Balance of Trade – Since New Zealand is an export-driven economy, traders often take a look at their trade balance to gauge the international demand for New Zealands products.

What Moves the NZD？

Economic Growth

Positive GDP growth reflects the strong economic standing of New Zealand, causing it to boost the needs for its currency. Negative GDP growth highlights the poor economic performance of the country, dampening demand for the NZD.

Surge in Exports

Higher demand for New Zealand‘s products often results in a higher GDP, which then boosts the NZD. In contrast, lower exports make a smaller contribution to GDP, causing the NZD’s value to fall.

Rising Commodity Prices

Increasing commodity prices cause the financial value of New Zealands exports to rise, pushing its GDP higher. Falling commodity prices, on the other hand, cause the financial value of exports to fall, dragging its GDP down.

Trading NZD/USD

This pair is the New Zealand Dollar vs. the U.S. Dollar. It is often mean to as trading the “Kiwi” because the $1 coin depicts the Kiwi bird. In 2012 the Reserve Bank of New Zealand intervened to devalue the Kiwi because it had increased so much. It is the 10th most traded currency in the world.

On a 100,000 unit NZD/USD position, each pip movement is worth $10 USD while on a 10,000 NZD/USD position size, each pip movement is worth $1 USD. Margin calculations are based in US dollars.

Let's say, when the current NZDUSD rate is 0.7000 and leverage is 100:1, 700 USD in available margin is expected for a 100,000 NZD position. A 10,000 NZD position requires 70 USD in available margin.

As you can notice, because of the Kiwi‘s relatively low value against the U.S. dollar, it requires the least amount of available margin between other majors. That means it’s cheaper to trade the Kiwi!

NZD/USD Trade Tactics

NZD/USD is the abbreviation for the New Zealand dollar and U.S. dollar currency pair. A price quote for this currency pair tells the reader how many U.S. dollars are expected to purchase one New Zealand dollar.

Strong economic reports from New Zealand result in an appreciation of the NZD so if theres a great likelihood that an economic release could beat the consensus, it could be a sign to go long NZD/USD.

While the Weak economic reports, on the other hand, push the NZD down. If an upcoming report is possibly to come in weaker than expected, it could be a fortune to short NZD/USD.

Apart from watching economic reports, taking note of commodity price behavior could act as an influence on NZD/USD price action. In recent history, commodity prices tend to surge if the demand for assets with high risk is strong at the same time. During these times, investors place their money in a highly productive nation assets such as gold and other commodities and sell the lower-yielding U.S. dollar. As a result, the commodity-based Kiwi gains strongly against the safe-haven U.S. dollar.

Furthermore, when risk aversion forces investors to flee back to the safe-havens, the NZD heads lower against the USD. Just like the AUD, the NZD is a good candidate for carry trade. Since carry trades involve buying a currency with high interest rates and selling a currency with low interest rates, New Zealands relatively high interest rate do gives support for the NZD.