According to Wikipedia.org, New
Zealand has a 2008 estimated population of around 4.2 million people,
which is the first important fact for us to understand for two reasons.
Firstly, as New Zealand's domestic market is so small, it must rely
heavily on exports to drive economic growth, making the country
especially susceptible to growth or decline in the global economy. This
is particularly true when looking at the health of its main trading
partners, the largest of which is Australia, followed by the United
States, and Japan. Secondly, unlike other countries with a larger
population, as the population of New Zealand is small, migration of
people into and out of the country can have a significant effect on its
economy, and therefore the currency. As Kathy Lien points out in her
book Day Trading the Currency Market, strong population migration into
New Zealand has contributed significantly to the performance of its
economy, because as the population increases, so does domestic
consumption.
Like Canada and Australia, New Zealand is a country with vast natural resources, making the economy and therefore currency heavily reliant on exports of commodities such as Wool, food and dairy products, wood and paper products. As Australia is the country's main export market and as the Australian Dollar is also heavily influenced by commodity prices, changes in commodity prices can have a particularly potent affect on the New Zealand Dollar. Although this correlation has broken down somewhat in recent months, as you can see from this chart, the NZD/USD and AUD/USD currency pairs are highly correlated as a result of these factors:
Like Canada and Australia, New Zealand is a country with vast natural resources, making the economy and therefore currency heavily reliant on exports of commodities such as Wool, food and dairy products, wood and paper products. As Australia is the country's main export market and as the Australian Dollar is also heavily influenced by commodity prices, changes in commodity prices can have a particularly potent affect on the New Zealand Dollar. Although this correlation has broken down somewhat in recent months, as you can see from this chart, the NZD/USD and AUD/USD currency pairs are highly correlated as a result of these factors:
Chart Showing NZD/USD and AUD/USD Correlations:
The last major fundamental factor that it is important to keep in mind when trading the New Zealand Dollar is, like the Australian Dollar here again, New Zealand, as of this lesson, has one of the highest interest rates in the industrialized world currently at 8.25%. This has driven the NZD/USD pair to 25 year highs recently, before selling off a bit as a result of slower growth in the New Zealand. This is important to keep in mind, as the currency has been one of the primary beneficiaries of the carry trade flows, so interest rate expectations going forward will weigh heavily on the future direction of the currency.
