NEW ZEALAND DOLLAR (KIWI)

The New Zealand dollar, also known as the “kiwi,” should get more of the attention of
forex traders. New Zealand is almost a classic example of how fundamentals can drive
currency movements. The New Zealand economy is small. It exports about $2.8 billion and imports $3.4 billion. Since its consumer economy is small, the fundamental characteristic
that affects its economy is whether its exports can grow. Therefore, interest
rates and the resulting currency valuation are key to its future economic vitality. The
fact is that 151 companies generate 78 percent of New Zealand’s exports. Data show only
4 percent of the New Zealand firms do any exporting.
New Zealand’s interest rates are now at 8.0 percent and, as a result, the currency has
risen substantially in strength. New Zealand’s unemployment rate has been at a low level
of 4.6 percent; however, its inflation rate is high, at 3.6 percent. New Zealand’s central
bank is in a difficult position. At current interest rate levels, New Zealand’s rates are the
highest of all the major currency pairs. But this level was recognized as having risks of
slowing the New Zealand economy. In fact, the New Zealand Central bank intervened
for the first time since 1990 and sold the New Zealand dollar on June 11. If it tries to
raise rates further to slow down inflation, it can choke off exports and cause a major
contraction. If it doesn’t, inflation may rise to unacceptable levels. The fundamentals
point to a mixed situation that can go either way. As a result of this uncertainty, the
kiwi offers potentially very many trading strategies, as the currency will be extremely
sensitive to central bank actions as well as surprises in economic data.
New Zealand’s major trading partners are balanced between the United States, Europe,
and its neighbors Australia and Japan (refer back to Table 7.2e). China’s influence
is also growing and will soon be reflected in its official trade-weighted indexes (see
Figure 7.7).
The forex trader looking to trade the kiwi can explore trading the dollar pair U.S.
dollar–New Zealand dollar (USDNZD), as well as the kiwi against the aussie (NZDAUD),
the yen (NZDJPY), or the euro (NZDEUR).




By ABE COFNAS