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New Zealand Dollar: NZD Trading Asset Features
Today, NZD trading assets hold about 8% of the global market (including stock exchange), but, nevertheless, they are not in massive “demand” among ordinary traders. Many are frightened by the need to analyze related markets and sectoral economic indicators. We are sure that the “kiwi” precisely suits the intelligent beginners who have come to the market to work, rather than speculate.
General information
On July 10, 1967, the New Zealand dollar (NZD, NZ $, Kiwi, Kiwi Dollar) replaced the self-titled pound in the Asian market. And it is now used not only as of New Zealand currency but also serves the families of the Niue, Tokelau, Cook Islands and Pitcairn.
The NZD issue is controlled by the Reserve Bank of New Zealand, which has been pursuing a monetary policy for more than 15 years against the speculative strengthening of the national currency to maintain exports (the most aggressive foreign exchange intervention was carried out in 2012).
New Zealand macro statistics are rarely published – only annual and quarterly reports can be found in the public domain. This generally simplifies the forecast of the Kiwi dynamics. Still, sometimes some economically important details pass by, so it is recommended to continually monitor the business press and official websites of the government.
Agricultural products account for more than half of the country’s exports, and the development of this sector of the economy occurs almost without government subsidies. From 2 to 4 million tourists visit New Zealand every year, so the NZD/USD asset experiences a positive trend during the tourist season.
New Zealand is a country with a nuclear-free status, its energy is based solely on oil and gas condensate, but the share of its own energy resources in the total volume does not exceed 15%, the rest is imported. A direct correlation with gold as a global “guarantee” financial asset is constantly used by the RBNZ to stabilize the foreign exchange rate.
Let’s take a closer look.
Features of fundamental analysis
All assets of Southeast Asia have common fundamental features:
- the weak influence of domestic policy on monetary actions of central banks;
- economic policy focused on the market of raw materials and energy resources;
- a consolidated response to global and regional factors;
- pressure from the Asian and American stock markets;
- dependence of the exchange rate on energy and industrial raw materials.
New Zealand is the largest supplier of dairy raw materials and products; therefore, the NZD/USD rate steadily monitors the price of milk futures.
The results of the international dairy auction from Global Dairy Trade are used as an indicator of the dairy price trend. Data is updated every 2 weeks, so the Kiwi reaction is late.
The Commodity Research Bureau (CRB Index) stock index, which contains data on inflation of goods exported by New Zealand (wool, milk, meat, textiles, wood, etc.), has a strong influence: the higher the index, the more expensive NZD.
Especially worth noting the impact of natural disasters on all assets involving the New Zealand dollar – drought, tsunami, earthquakes, floods, as well as military conflicts – all that puts pressure on agricultural production.
The base pair NZD/USD reflects the dependence on large trading partners (USA, China, Australia, Japan), so the pressure of the US dollar and Chinese yuan on the kiwi rate is powerful. The main factors of influence:
- Statistics and fundamental events (in order of importance) – of the USA, China, Australia, Japan (interest rates, GDP, inflation, unemployment, CPI, PMI, CPI), statements, comments by officials and financial figures of these countries.
- Currency intervention RBNZ, BOJ, and especially – the Central Bank of China.
- Prices for raw materials – oil (WTI), agricultural products, non-ferrous metals (gold, copper, nickel, iron ore), as well as the dynamics of Asian stock indices (Nikkei 225, KOSPI, Hang Seng, SET50, Composite, TOPIX).
Features of technical analysis
The main NZD/USD pair is most liquid during the Asian session, but stable volatility (40-80 points) is supported almost the entire exchange day. Even in the European session, this asset holds about 5% of the total volume of Asian currencies.
On the non-speculative market, it lends itself well to classical technical analysis: it steadily fulfils graphic patterns and support/resistance levels (see Using Graphic Tools).
More than half of the kiwi sales volumes are provided by large commodity, option and CFD contracts, as well as RBNZ and BOJ exchange transactions.
Therefore, the NZD/USD rate and the NZD/JPY cross can give speculative throws at the moment of expiration of contracts and the main reporting periods closing. Daily fluctuations in NZD/USD rarely exceed 100 points.
NZD/USD actively responds to national statistics, but only with a substantial deviation of the fact from the forecast (most often with a gap). A slight difference is usually ignored. Unlike its “senior” partner, the Australian dollar, the kiwi’s reaction to the situation in China and the region as a whole is weak.
The strongest reaction to any information from the RNBZ is the speech of the Central Bank head. On NZD/USD, opening a week with a gap is normal.
The results of the dairy auction are worked out immediately – right after the close of the Asian stock markets. However, it is not perceived as news: this information is valid for the current trend for 2-3 days.
Do not forget: for the kiwi news, the “roll” of 50-70 points is a severe reaction. Even on extreme speculations on the US dollar, NZD/USD gives no more than one figure.
Features of trading strategies
The main thing in NZD assets is trend trading with medium risks. Despite the strong connection with fundamental factors, we receive trading signals exclusively from technical indicators.
What is the result?
You can trade by any classical method, but the presence of pulsed instruments (oscillators, volume indicators) is highly recommended.
The exception is left only to systems of strong reversal levels, for example, Murrey or Camarilla (see Using Indicators).
Although the “kiwi dollar”, as well as the main NZD crosses, can move for a rather long time in the range of 30-60 points (including in the directional channel), short-term trading is still ineffective. The optimal timeframe is at least H1.
Historically, the New Zealand dollar has been recommended for CarryTrade transactions. Still, since November 2016, the RBNZ interest rate has been only 1.75%, and the profitability of such trading methods has significantly decreased.
A few practical notes
Kiwi Dollar offers assets with stable volatility, low spread and quite predictable, the risk of losing “all at once” is extremely low. For a successful forecast on NZD, it is enough to track a few fundamental parameters, but studying various information on the Southeast Asian region favorably broadens the horizons of the trader.
Learning to make money with kiwi means to be almost ready to work successfully in the stock market.
Try It Yourself
As you can see, backtesting is quite simple activity in case if you have the right backtesting tools.
The testing of this currency feature was arranged in Forex Tester with the historical data that comes along with the program.
To check this (or any other) feature’s performance you can download Forex Tester for free.
In addition, you will receive 23 years of free historical data (easily downloadable straight from the software).
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