FXCM Insights

NZD – New Zealand Dollar

The New Zealand dollar, despite its issuance in a mid-sized economy, is one of the most heavily traded currencies internationally representing up to 2% of all trading globally.

The New Zealand dollar is symbolised by NZ$ and has a currency code of NZD. There is currently US$5 billion in cash and coins in circulation, and a volume of approximately US$105 billion in New Zealand dollars is traded daily on the global foreign exchange market.

The currency is regulated by the Reserve Bank of New Zealand—the country’s central bank. One and two dollar denominations are issued as coins, and the currency has banknotes of NZ$5, NZ$10, NZ$20, NZ$50 and NZ$100. They feature images of prominent national figures, icons, and landmarks on one side, and images of wildlife and nature scenes on the other.

NZDUSD Chart

The History Of The New Zealand Dollar

Some theories suggest that the Southern Pacific island nation known today as New Zealand may have been visited and inhabited by travelers from as far away as the Middle East and Europe as early as the 7th-century B.C. However, the first known native inhabitants of the island, the Maori, are thought to have arrived there from Melanesia around the 12th-century A.D. Before the arrival of the Europeans, the Maori used barter for trade and exchanged items including fish and semi-precious stones.

In 1642, Dutch explorer Abel Janszoon Tasman visited the area and claimed it for the Netherlands under the name of Staaten Land. The name was later changed to Zeelandia Nova after the Dutch province of Zeeland, and then, in English, to New Zealand. In 1769, the islands were visited by British explorer James Cook, who claimed them for the British crown under King George’s reign.

Initially, the islands of New Zealand were governed from the colony of New South Wales in eastern Australia. Upon arrival of the Europeans, trade in New Zealand evolved to the use of objects such as farm tools, weapons, timber and agricultural goods. Amid a threat by the French to declare sovereignty over the islands, British representative James Busby negotiated a declaration of independence in 1835 between Maori tribal leaders and the British crown. Under the declaration, New Zealand would be treated as a British protectorate.

However, the French continued to threaten annexation of the islands, and in 1840, an emissary from the New South Wales colony of Australia, William Hobson, negotiated the treaty of Waitangi with Maori tribal leaders that would annex the territory of New Zealand to Britain. Hobson convened a New Zealand government, and he moved the seat of power from its former location in the Bay of Islands north to the new capital, Auckland.

From that point onward, significant numbers of British and other European colonists began to immigrate to the islands, making land purchases from the local inhabitants as allowed by the treaty. With the arrival of colonists, the British pound was circulated as the main currency of the territory.1)Retrieved 11 March 2016 http://www.zealand.org.nz/history.htm

Evolution To An Independent Economy

Beyond their initial aborted declaration of independence together with the Maori leaders, the settlers in New Zealand never formally separated ties with Britain, but rather the country evolved toward independence through a series of legislative and diplomatic actions. New Zealand became a self-governing colony in 1852 with the passage of the New Zealand Constitution Act.

The British pound, alongside the Australian pound, remained the dominant currencies on the country’s two main islands until 1897, when the British pound was made the official legal tender. After New Zealand’s rejection of an invitation to participate in the formation of the Australian Federation, Britain in 1907 granted the country the status of a semi-independent dominion alongside Canada, Australia, India, Sri Lanka, Newfoundland, South Africa and the Irish Free State.

In 1926, the Balfour Declaration formally granted New Zealand full control over its military and foreign affairs, by which it assumed its own representation internationally. Through the London Declaration of 1949, former British colonies, including New Zealand, became members of the British Commonwealth. Since then, the country has made moves to distance itself from dependence on Britain. Despite these developments, New Zealand formally remains a member of the Commonwealth, and its future as a republic entirely separate from Britain remains in debate.

While the New Zealand pound used traditional subdivisions of 20 shillings per pound and 12 cents per shilling, an interest arose in the decimalisation of the local currency. In 1957, the government launched a committee to study the matter, and in 1967, the country launched the New Zealand dollar with decimal subdivisions to replace the pound.

Initially, the New Zealand dollar was pegged to the U.S. dollar at a rate of US$1.43 to NZ$1, and later adjusted to US$1.12 to NZ$1. However, when the U.S. went off the gold standard in 1971, the New Zealand dollar was revalued to around US$1.21 to NZ$1. After Britain joined the European Union in 1973, an action that had an impact on trade patterns and regulations, New Zealand reinforced its movement toward diplomatic and economic independence, including diversification of trade.

From 1973 onward, the New Zealand dollar’s value was determined from a trade-weighted basket of currencies. However, in the midst of a balance of payments crisis in 1985, New Zealand decided to allow its currency to float against others, and since then it has generally traded in a range of value from US$0.30 to US$0.90.2)Retrieved 11 March 2016 http://www.rbnz.govt.nz/notes-and-coins/coins/history-of-new-zealand-coinage

Economy Of New Zealand

New Zealand’s economy is the 71st largest in the world, according to GDP. The country’s top industries include agriculture, forestry, fishing, logs and wood articles, manufacturing, mining, construction, financial services, real estate services and tourism. Among the country’s top exports are dairy products, meat and meat products, lumber and wood products, fruit, crude oil and wine. Imports include petroleum and related products, mechanical machinery, vehicles and parts, electrical machinery and textiles.3)Retrieved 11 March 2016 http://wwww.cia.gov/library/publications/the-world-factbook/geos/nz.html

New Zealand’s top trade partners include China, Australia, the U.S., Japan, Germany, South Korea and Malaysia. Since distancing itself from dependence on the British market in the 1980s, New Zealand has moved from an agrarian economy to a more industrialised free market economy engaged in global competition.

Although it faced slow growth in addition to balance of payments shortfalls following the global financial crisis in 2009, the economy has since recovered amid a decline in interest rates. As a result, it has shown growth of between 2-3%.4)Retrieved 11 March 2016 http://wwww.cia.gov/library/publications/the-world-factbook/geos/nz.html

Nevertheless, key trade sectors remain vulnerable to weak global demand and lower commodity prices. Following a severe earthquake on the country’s Canterbury coast in 2010, the government undertook economic stimulus measures to invest in innovation, raise productivity, develop infrastructure, expand export markets, develop capital markets and ease fiscal austerity.5)Retrieved 11 March 2016 http://wwww.cia.gov/library/publications/the-world-factbook/geos/nz.html

Regulation

Foreign exchange and financial trading in New Zealand are regulated by the Ministry of Finance, the Reserve Bank, the Financial Markets Authority, the Financial Service Providers Register and Financial Services Complaints Limited. Legislation related to financial trading in the country was unified in 2014 under the Financial Markets Conduct Act.6)Retrieved 11 March 2016 http://www.mbie.govt.nz/info-services/business/business-law/financial-markets-conduct-act

Major New Zealand Dollar Currency Pairs

The New Zealand dollar is commonly traded in pairs with major world currencies, including USD, CAD, AUD, EUR, GBP and JPY, among others.7)Retrieved 11 March 2016 http://www.rbnz.govt.nz/statistics/b1

New Zealand Dollar Bills And Coins

Since its introduction, the New Zealand dollar has been issued as coins, cotton-based paper money and plastic polymer money.8)Retrieved 11 March 2016 http://www.rbnz.govt.nz/notes-and-coins/coins/history-of-new-zealand-coinage The currency is popularly known among currency traders by the nickname “the Kiwi,” which is the name of the country’s national bird depicted on its coins.

New Zealand’s banknotes are printed by Note Printing Australia under authorisation of the Reserve Bank, and coins are manufactured at the Royal Mint and the Royal Canadian Mint. Coins in current use include NZ10c, NZ20c, NZ50c, NZ$1 and NZ$2.9)Retrieved 11 March 2016 http://www.rbnz.govt.nz/notes-and-coins/coins/history-of-new-zealand-coinage

The New Zealand Dollar Around The World

The New Zealand dollar is traded and used as a reference currency in several island territories of the South Pacific, including the Cook Islands, Nile, Pitcairn Islands, the Ross Dependency and Tokelau. Although New Zealand is a small nation by population, its currency is heavily traded internationally because of the country’s stable local economy, large foreign bank base, heavy foreign trade and traditionally high local interest rates.10)Retrieved 11 March 2016 http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11176031

Where Is The New Zealand Dollar Today?

The New Zealand economy appeared to stage a firm recovery following the global financial crisis in 2009. The central bank was able to maintain higher interest rates, helping attract foreign investment and boosting the value of the local currency. However, the country’s economy has been hurt by a slowdown in China and a generalised drop in commodities prices around the globe. A falling value of commodities-linked exports and a local slowdown has forced the country’s central bank to cut interest rates. This has prompted a sell-off of the New Zealand dollar and a weakening in its value against many major currencies.11)Retrieved 11 March 2016 http://www.cnbc.com/2015/07/16/small-country-big-problems-new-zealand-dollar-tanks.html

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