How To Trade NZD/USD
NZD/USD is a popular pair in binary options trading. It is also called the kiwi or the kiwi pair because of the well-known fruit that is found in abundance in New Zealand. In fact, the nickname is not accidental – the fruit plays an important role in the country’s exports and economy, which also influences the currency pair. Yet, the New Zealand economy is not only about kiwis of course, though the agriculture is one of the major sectors. It is enough mentioning that the number of sheep exceeds the human population.
You may be curious to know what really drives the New Zealand dollar in relation to other currencies. Well, we will talk about the most important reports and economic indicators in the following lines.
New Zealand exports much of powder milk to China. Accordingly, any move in the Chinese economy, like GDP growth or slowing, is very significant, because when the demand for New Zealand products go up, the milk price will also increase, which will boost the NZD against its rivals. Note that this situation is very similar to the Australian dollar – Australia is also heavily dependent on the Chinese economy because it exports a third of its goods to China. This is why you will find many similar patterns between the NZD pairs and AUD pairs.
Besides the economic indicators and milk powder sales, you should also monitor the activity of the Reserve Bank of New Zealand (RBNZ), which organizes meetings every month, on a Wednesday. Sometimes the RBNZ’s meeting and press conferences come immediately after the Fed meeting and the FOMC report in the US, which makes it difficult for the NZD/USD to find a certain direction.
Important Economic Releases To Watch In New Zealand
The powder milk and milk prices are definitely having a major impact on the NZD price performance, so you should watch the GDT index as one of the main drivers.
Yet, you cannot ignore that typical major economic indexes like the GDP growth, inflation rate and consumer prices, because the RBNZ is assessing all of them when setting the interest rate.
As usual, the RBNZ rate decision is followed by a conference where the bank officials are bombarded with different questions by journalists so that you could understand the bank’s sentiment and future expectation on the country’s economy.
Important Economic Releases To Watch In United States
Now, when we talk about the US, we refer to the largest economy in the world and the economic reports and events are closely watched by all the market participants from around the world. You shouldn’t wait long because the US reports with major impact come every week.
Since the US Federal Reserve, which is the US central bank, is dealing with a dual mandate, it is clear that Nonfarm Payrolls, released monthly, and the consumer prices index (showing inflation) are the most important. Yet, for such a big economy like the US one, everything matters – you should follow the ISM index (from the Institute for Supply Management) in the manufacturing and non-manufacturing sectors, GDP growth, retail sales, producer price index (PPI), ADP’s private payrolls, applications for unemployment benefits, durable goods orders, and more.
What To Expect From Economic Releases
You should expect the New Zealand currency to show sharp movements whenever the interest rate decisions are published by the central bank, and sometimes the bank comes with drastic measures. For example, since the world economic growth has slowed in the recent years and the commodity prices suffered because of this, the New Zealand together with Australian central bank had to cut the rates in order to support the domestic economy and business investment.
Generally, NZD pairs are quite challenging, particularly the NZD/USD pair. This is because these pairs call for a little margin. This leaves more space for possible overtrading, and traders want to stay away from this.
The changes in consumer prices index or inflation are having a great impact as well, and you should expect that the US economic indicators have more force for the NZD/USD price evolution than the economic reports from New Zealand.
Many traders prefer the NZD/USD because of the low margin and positive swap. For those who make their first steps in Forex trading, the swap in our case is the interest rate differential between NZD and USD, which turns out to be positive since the NZ rate is higher than the US rate. The swap is perceived as a percentage that is paid for maintaining a position overnight and it can be negative or positive. When it’s negative, you have to pay for your position, and when it’s positive, you will be paid a percentage when you keep the position for more than one day.
Also, keep an eye on the Federal Open Market Committee (FOMC) of the US Fed, because every decision they make on the interest rate will totally influence the USD in relation to its rivals, including the NZD. The committee is meeting once per six weeks and organizes press conferences after each meeting.
Applying fundamental analysis is essential for any trader who wants to become profitable.
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References and Further Reading:
- Order flow and exchange rate changes: A look at the NZD/USD and AUD/USD (Nick Smyth)
- Market efficiency in foreign exchange markets (Gabjin Oha, Seunghwan Kima, Cheoljun Eom)
- A Hedging Strategy for New Zealand’s Exporters in Transaction Exposure to Currency Risk (Kam Fong Chan, Christopher Gan, Patricia A. McGraw )
- On the relationship between exchange rates and equity returns: A new approach (Georgios Katechos)
- Hedging and value at risk (Richard D. F. Harris, Jian Shen)