What is NZD/USD?
The NZD/USD currency pair indicates how much one New Zealand dollar is worth against the US dollar. For example, if the NZD/USD exchange rate is 0.59, it means that 1 New Zealand dollar is equivalent to 0.59 US dollars.
Both the US dollar and the New Zealand dollar are among the most traded currencies in the world. The USD is held by most central banks and investment institutions and used as the official currency in several nations, including Ecuador and El Salvador. Due to the stability and dependability of the US economy, the dollar is the currency of choice for international transactions and reserves. In addition, the dollar's dominance in international trade has significant implications for exchange rates and economic policies worldwide, and it can serve as a benchmark for nations that choose to set or peg their currencies to the dollar's value.
The New Zealand dollar is one of the most widely traded currencies on the international foreign exchange market. It is legal tender in New Zealand and several of its territories and associated states in the Pacific region, including the Cook Islands, Niue, Tokelau, and the Pitcairn Islands. Due to New Zealand's stable economy and relatively high-interest rates compared to other major currencies, it is a popular currency among forex traders. The NZD is issued by the Bank of New Zealand.
NZD/USD historical performance
The New Zealand dollar made its debut in 1967, initially pegged to the British pound at an exchange rate of 1 GBP = 2 NZD. However, in 1971, New Zealand shifted its peg to the US dollar.
A significant turning point occurred in 1985, when New Zealand decided to let its currency float freely against other major currencies, putting an end to the dollar peg.
Remarkably, despite New Zealand's relatively modest economic size, the New Zealand dollar earned recognition as one of the world's major traded currencies, attributed to the country's robust economic performance and stability.
What affects the price of the NZD/USD pair?
The monetary policies of the Reserve Bank of New Zealand (RBNZ) and the US Federal Reserve both have a significant impact on the NZDUSD exchange rate. Interest rate announcements, for example, can influence investor sentiment and market expectations, thereby further influencing the exchange rate between two currencies.
New Zealand exports a vast quantity and range of agricultural and food items such as dairy, beef, wood, and seafood, and therefore commodity prices have a substantial impact on the strength of the New Zealand dollar.
Economic data indicators can also influence the NZD/USD pair. Those include Gross Domestic Product (GDP) growth, employment numbers, inflation rates, and trade balances, which can impact exchange rates. Strong economic data in the US compared to New Zealand can lead to an increase in demand for the USD and a subsequent rise in the USD/NZD pair.
What to watch out for when trading NZD/USD?
Traders of the NZD/USD pair should watch out for announcements from key influential organisations in both countries. These include:
- US economic data (GDP, inflation, employment, manufacturing and services PMI, consumer sentiment)
- US Federal Reserve and Bank of New Zealand (RBNZ) monetary policy and interest rates
- Statistics New Zealand for data on Trade Balance, Unemployment Rate, Consumer Price Index (CPI), and GDP
- Oil-related market events (OPEC meetings, oil inventory data)
