Will the New Zealand dollar continue to weaken? An in-depth analysis of the NZD trend and investment strategies

New Zealand Dollar (NZD) is the official currency of New Zealand. Since 1985, New Zealand has adopted a floating exchange rate system. The NZD against the US dollar has become one of the most traded currency pairs globally, ranking ninth in the international foreign exchange market. The currency pair is quoted as: X US dollars per 1 New Zealand dollar. For example, if the NZD/USD trading price is 1.50, it means you need to pay 1.5 US dollars to buy 1 New Zealand dollar.

NZD Trend Analysis: From Peak to Trough

The NZD against the US dollar has shown significant fluctuations. Since the historical high of 0.88 in 2014, it has fallen to just above 0.5 USD, a depreciation of approximately 32%. This downward trajectory reflects the multiple challenges faced by the New Zealand economy.

According to forecasts from major investment banks, the NZD/USD still has room to decline in the short term:

• Expected to reach 0.594 in six months
• Target of 0.5934 within one year
• Target of 0.5885 within two years
• Target of 0.5834 within three years

Commodity Currency Characteristics: The Linkage Between NZD and AUD

The AUD and NZD are widely regarded as barometers of global economic growth, both being typical commodity currencies. The concept of commodity currencies originates from monetary systems backed by tangible assets—supported not only by government credit but also by intrinsic commodity value. Historically, gold and silver represented this, while today it includes the AUD, CAD, and NZD.

As export-oriented economies, Australia and New Zealand mainly export raw materials such as coal, iron ore, copper, aluminum, and wool, with Australia holding a dominant position in international trade. Consequently, these two currencies tend to move in tandem with commodity prices, and during economic downturns, both tend to depreciate against the US dollar by more than 10%.

NZD Trend Analysis: Four Major Drivers Behind Depreciation

Fluctuations in Agricultural and Commodity Prices

Over two-thirds of New Zealand’s exports are agricultural products, dairy, and wool. The international market prices of these commodities directly influence the NZD’s performance. When prices rise, it usually signals an improved economic outlook for New Zealand; conversely, falling prices exert downward pressure on the NZD.

Negative Impact of Tourism Industry Decline

Tourism is a vital pillar of New Zealand’s economy. Since the global pandemic outbreak, international travelers have sharply decreased, severely impacting the industry and dragging down the NZD.

Constraints from the Federal Reserve’s Rate Hike Cycle

The NZD/USD trend is heavily influenced by US interest rates. Under the Fed’s rate hikes, the US dollar continues to strengthen, while the interest rate gap between the Reserve Bank of New Zealand and the Federal Reserve widens. The relative strength of the US dollar against the NZD directly puts pressure on the NZD/USD exchange rate.

Impact of Global Sudden Events

As a highly export-dependent economy, New Zealand is extremely sensitive to major global events. Pandemics, geopolitical risks, and other unforeseen circumstances can directly affect exports, leading to continued depreciation of the NZD.

NZD Trend Analysis and Outlook

In the long term, global economic recession risks pose a bear market threat to the NZD. In the short term, bearish sentiment dominates, and further declines are possible.

However, the rebound potential of the NZD should not be underestimated. Economic growth in New Zealand and increased international demand can push the NZD higher. When global risk assets are in strong demand, commodity prices tend to rise, and investors often allocate funds into gold and commodities, while selling off low-yielding safe-haven US dollars. This dynamic can lead to a rapid appreciation of the NZD against the US dollar, driven by commodity fundamentals.

Four Ways to Invest in the NZD Compared

NZD Fixed Deposit

Investing in NZD fixed deposits at banks is the most traditional approach. Investors exchange their local currency for NZD at the current exchange rate and deposit into a fixed-term account. Upon maturity, they receive interest income and convert back at the prevailing rate. Advantages include low risk and familiarity; disadvantages are relatively low returns.

NZD Funds

Forex funds directly invest in NZD, managed by professional fund managers. Compared to fixed deposits, funds face greater exchange rate volatility, with higher risk and potential returns.

NZD Futures

NZD futures are derivative financial instruments traded on international commodity exchanges. They use margin trading and support both long and short positions. The advantage is high capital efficiency, but there are risks of margin calls and liquidation, requiring investors to have risk management skills.

Contracts for Difference (CFD)

CFDs are agreements between buyers and sellers on the price difference, without physical delivery. Compared to futures, CFDs require less margin, offer higher capital efficiency, and feature flexible two-way trading. For relatively predictable commodity currencies like the NZD, short-term CFD trading can offer good profit opportunities.

Key to Seizing NZD Investment Opportunities

When trading NZD currency pairs, closely monitoring the policy decisions of the Federal Reserve and the Reserve Bank of New Zealand is crucial. Important economic data releases on the economic calendar can be turning points for the market. Main currency pairs such as NZD/USD, GBP/NZD, EUR/NZD are all worth watching.

In the current environment where the US dollar remains resilient, selecting appropriate investment tools based on your risk appetite is essential to capitalize on NZD trend changes.