The underlying reasons behind the continuous depreciation of the New Zealand dollar: A comprehensive understanding of the NZD trend

New Zealand Dollar, NZD (Currency code: NZD), also known as the New Zealand dollar. Since 1985, New Zealand has adopted a floating exchange rate system, with the Reserve Bank of New Zealand ceasing to publish official buy and sell rates and ending its peg to a basket of trade-weighted currencies. As one of the most traded currencies globally, NZD/USD ranks ninth in global forex trading volume, with a quote format of X dollars per 1 New Zealand dollar. For example, if the exchange rate is 1.50, it means 1.5 USD is needed to buy 1 NZD.

NZD Historical Trends: From Peak to Trough

According to market data, the NZD/USD exchange rate has fallen from its all-time high of 0.88 in 2014 to just above 0.5 USD, with the New Zealand dollar depreciating about 32%. This decline reflects market concerns over New Zealand’s economic outlook.

Why is the NZD Depreciating? Four Core Factors Analyzed

The continued depreciation of the NZD is not accidental but the result of multiple factors working together:

Fluctuations in Agricultural and Commodity Prices

New Zealand is a typical commodity currency country, with over two-thirds of its exports consisting of agricultural products, dairy, and wool. Declines in these commodity prices on the international market directly impact New Zealand’s export income, further weakening the NZD. As a commodity currency, the NZD moves in tandem with global commodity prices, which is the fundamental driver of its depreciation.

Severe Impact on Tourism

Tourism is another major pillar of New Zealand’s economy. After the outbreak of the COVID-19 pandemic, international tourism halted, and as a popular travel destination, inbound visitors to New Zealand plummeted. This loss of foreign exchange income has directly affected the NZD.

Spillover Effects of Federal Reserve Rate Hikes

The NZD/USD exchange rate is heavily influenced by US interest rates. Driven by aggressive rate hikes by the Federal Reserve, the US dollar has continued to strengthen, while the interest rate gap between the Reserve Bank of New Zealand and the Fed has widened. Relatively low NZD interest rates make investors prefer holding USD assets, further exerting downward pressure on the NZD.

Impact of Global Sudden Events

As an economy highly dependent on exports, New Zealand is extremely sensitive to global emergencies. Whether geopolitical risks or sudden global crises, these events can directly affect New Zealand’s export trade and shake the foundation of the NZD’s exchange rate.

The Unique Nature of Commodity Currencies: The Correlation Between AUD and NZD

The Australian dollar and the New Zealand dollar are often seen as barometers of global economic growth. Both are export-oriented economies mainly producing coal, iron ore, copper, aluminum, wool, and other industrial commodities. Due to their similar economic structures, AUD and NZD tend to move in tandem with commodity prices, colloquially called “commodity currencies.”

The original definition of commodity currencies refers to currencies backed by tangible assets—beyond government credit, they possess intrinsic value. Historically, gold and silver were typical representatives, and in the modern era, AUD, CAD, and NZD continue this trait. After the global recession post-pandemic, the AUD and NZD both fell more than 10% against the USD, exemplifying typical commodity currency behavior in economic cycles.

Future Outlook: Long-term Pressure, Short-term Volatility

Due to the global economic slowdown, the NZD may enter a bear market in the long run. According to forecasts from major investment banks, the NZD/USD exchange rate is expected to gradually weaken:

• Within six months: 0.594
• Within one year: 0.5934
• Within two years: 0.5885
• Within three years: 0.5834

These forecasts indicate a generally bearish medium-term outlook for the NZD. In the short term, the NZD may experience downward trends, and traders should closely monitor policies from the Federal Reserve and the Reserve Bank of New Zealand.

Where Is the Hope for a NZD Rebound?

Historically, the NZD’s rise is driven by economic growth in New Zealand, increased demand for local products, and the resulting rise in GDP. When risk assets are in strong demand, commodity prices tend to rise, prompting investors to allocate funds into higher-yielding gold and other commodities, while selling off low-yield USD. This arbitrage mechanism can lead to rapid appreciation of the NZD against the safe-haven USD.

However, currently, the USD demonstrates strong resilience amid market volatility, limiting the space for the NZD to rebound.

Overview of Investment Methods for the NZD

For investors interested in participating in NZD trading, there are four main options:

1. NZD Fixed Deposit

As a recognized international fiat currency, NZD can be exchanged directly at local banks. Investors convert their local currency into NZD at the current exchange rate, deposit into a fixed-term account, and upon maturity, convert back at the prevailing rate. This method has low risk and is straightforward, but offers relatively low returns and limited participation in exchange rate fluctuations.

2. NZD Funds

NZD funds are foreign exchange funds that target the New Zealand dollar, managed by professional fund managers. Due to volatile exchange rates, these funds carry higher risks and potential returns, suitable for investors with a certain risk tolerance.

3. NZD Futures

NZD futures are forex derivatives traded on the Chicago Mercantile Exchange (CME), with the product code NE. Futures contracts specify the transaction at a predetermined price on a future date. The minimum tick size is 0.0001, with a minimum value of $10, and settlement is physical delivery.

Futures are margin trading instruments, allowing both long and short positions. Since futures must be settled at expiry, there are risks of forced liquidation, margin calls, or even account wipeouts, requiring strong risk management skills.

4. CFD (Contract For Difference)

CFD is a contract between buyer and seller based on the price difference of the underlying asset. The seller pays the buyer the difference in cash between the contract and settlement prices (or vice versa). Since no physical trading of the underlying asset occurs, CFDs are particularly suitable for forex trading.

Compared to futures, CFDs require less margin, have higher capital efficiency, and can maximize small capital leverage. In theory, CFDs have no expiration date and can be held indefinitely without rollover issues. They support both long and short positions, making them especially advantageous for short-term trading of commodity currencies like the NZD. The relatively predictable trend of commodity currencies allows short-term bidirectional trading via CFDs to generate more profit opportunities.

Popular NZD Currency Pairs

The most actively traded NZD pairs include:

• NZD/USD – the main NZD trading pair
• GBP/NZD
• EUR/NZD
• AUD/NZD
• NZD/JPY
• NZD/CHF
• NZD/CAD
• NZD/SGD

Conclusion

The depreciation trend of the NZD reflects deep structural challenges in the New Zealand economy—impact on traditional export sectors, tourism downturn, and adverse global interest rate environments. In the short term, the NZD may face downward pressure, but the long-term trend ultimately depends on economic fundamentals and the recovery of global commodity markets. Investors should fully understand their risk tolerance, choose appropriate investment tools, and closely monitor relevant economic data and central bank policies before engaging in NZD trading.