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Trading the New Zealand Dollar

The New Zealand Dollar is often referred to by currency traders as the Kiwi.  Trading the New Zealand Dollar (NZD) has been popular in recent years on account of the strength of the New Zealand economy and the relatively high interest rates that prevailed there during the global recession.

The New Zealand Dollar was launched in 1967 to replace the New Zealand Pound, and at the same time introduce a decimal currency into the islands.  Previously, New Zealand used the old imperial system of pounds, shillings and pence. The NZD was initially pegged to the US Dollar, but in 1975 was switched to a trade-weighted basket of currencies. It was fully floated in 1985.

There are fewer New Zealand Dollars in circulation compared with some other major currencies, so the NZD price can fluctuate purely as a consequence of currency trading activity. Heavy trading of the NZD is magnified by the fact that there is less physical currency.

In 2007 the Reserve Bank of New Zealand, the country’s central bank based in the city of Wellington, intervened in the market by selling an unknown number of dollars in an effort to drive down its price. This was its first currency intervention since the New Zealand Dollar was floated.

Trading the New Zealand Dollar is popular, with NZD being one of the top 10 most highly traded currencies in the world.  It is, however, considered a somewhat riskier asset than those of some larger currencies.  This can prompt a ‘flight to quality’ in times of crisis.

New Zealand is a lightly populated country, but is a major exporter of agricultural products. An expensive NZD will hit this key strategic industry hard. The central bank has demonstrated that it is prepared to intervene in currency markets if this happens.

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