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NZD Exchange Rate Tug Of War

New Zealand’s a low density country that gathers a disproportionate amount of interest with it’s currency, the NZD.  Many forex traders love the freedom with which the NZD trades and the political, economic and peaceful stability of the country making it an attractive currency to trade.

Here’s a look at what’s been happening recently in New Zealand that may have an impact on the NZD; an update to An Insiders Guide To The NZD – You Can’t Cage A Kiwi.


19 August 2013 marks the first day that gay couples can marry in New Zealand.  In fact, New Zealand is leading the way by being the only country in Australasia to approve and legally recognise gay marriages.

When people marry it’s often the biggest single day expenditure that they have on non-assets.  Monetary constraint can go out the window and lavishness abounds as the couple celebrates their love and commitments thereafter.

Weddings are big money and New Zealand is ready to capitalise on it.  Already a popular tourist destination for honeymoons, New Zealand is poised to capture more of their share of the wedding spend.

Only time will tell how much gay marriages will contribute to the New Zealand economy but it’s sure to make an impact.  Not just for domestic weddings but marriage tourism is a big spend item too.


The Christchurch earthquakes that created much loss of life and structural devastation continue to impact and will remain so for at least the next decade.

In April 2013 estimates of the rebuild of Christchurch City have gone up an estimated $10 billion to $40 billion.  These are astounding figures for such a small country.  $15 billion of the $40 billion is the expected net residual burden to the Government and this was factored into the May 2013 government annual budget.

Much of the destruction is covered by overseas insurance.  So a large amount of these monies are flooding to our shores.  The burden to New Zealand of costs that will not be met by overseas insurance, such as payments from the New Zealand Government for land that has become structurally unsound, will be a cost to this country.  On the flip side though the construction is expected to fuel growth in the country, with additional jobs and spending.  This money go round and growth is expected to offset the burden on the country as the country benefits from the rebuild growth and associated spending.


The scary thing is that the large earthquakes are no longer contained to Christchurch.  There have been some large quakes in excess of magnitude 6 further up the fault lines through New Zealand, in the Seddon area between the North and South Island.  Wellington, the capital city, has rocked severely as have other parts of the lower North Island and upper South Island.

These new earthquakes have been accompanied by more damage.  On the bright side the earthquake risks to Wellington have been well known for decades and Wellington buildings have been built to strong structural specifications, better equipped to withstand the shaking.


Fonterra, New Zealand’s largest company with the most significant impact on the New Zealand economy, is in product recall mode.  This is after a contamination of whey protein concentrate, that was then used as an ingredient in several products.  Investigations are in full swing by the company and the government to ascertain the cause of the contamination and to put in place measures to prevent any future occurrence.

Unfortunately, even with a company culture that takes great care, something can get missed and mistakes happen.  Fortunately no lives have been lost as a result of the incident and hopefully Fonterra will look back at this as a learning experience and be stronger for it.

As heads roll and investigators scour the place, the Fonterra impact is sure to have a bad effect on some of New Zealand’s upcoming economic results in the short term.

New Zealand’s reputation for quality produce sustains the country and the thriving agricultural industry.  No stones will be left unturned to protect New Zealand’s reputation.


New Zealand’s summer drought well and truly ended.  In April 2013 summer was gone and the heavens opened with rain.  In fact there was so much rain that it was sometimes hard to do things needing silence as the rain thrashed down on my noisy steel roof.  The months of April, May and June 2013 had historically higher than average rainfall playing catch up after the drier than normal summer skies.

Pastures are now green and growing conditions sound, with rain mixed with sunlight and conditions still fairly warm for this kind of year.  Gone are the complaints from farmers on National TV as they now quietly tend to their flourishing stocks.

World food prices for quality food continue to climb, as you’d expect as the world has more nations with hungry mouths and open wallets.


New Zealand and it’s neighbour Australia offer the highest interest rates in the world of the popularly traded floating currencies.  These high interest rates attract global investors and speculators to their currencies as they seek a better return.  The NZD and AUD are highly sensitive to changes in their interest rates and can be jolted quite severely up or down if there’s an unexpected change in their rates.

Recently New Zealand’s neighbour, the Australian government dropped their interest rates again by 0.25 percent to 2.50% in an attempt to fuel the economy.  By contrast the New Zealand government has been holding their’s firm at 2.50% with an upbeat outlook of the future impact on rates.  With New Zealand now being coupled with Australia as having the top interest rate of the popularly traded floating currencies, the pressure will be on the NZD currency to appreciate as it attracts high yield seekers.

New Zealand is a nation where people love property.  Property is a popular way for New Zealanders to accumulate wealth as house prices historically perform well.  House prices are rising strongly in Auckland and Christchurch in particular.  This is fuelling renewed interest in property accumulation.

If interest rates are perceived as low, every Tom, Dick and Harry goes out and buys property for rental or a second home in an effort to increase their wealth.

The New Zealand Government will have difficulty following suit with Australia by reducing interest rates as it will make a rush to property more intense with lower borrowing costs.  They will likely want to manage the risk of a property bubble carefully and avoid it if possible.

With high world food prices, the continuing impact of the Christchurch rebuild and a property boom, the pressure is on for the interest rates to rise in New Zealand.


Both positive and negative forces are having a tug of war effect on the value of the NZD.  Who knows where it will all end up.  Only time will tell.

Share your thoughts:

  • What’s your view on the NZD?
  • What’s your view on the New Zealand economy?
  • Do you trade a NZD currency pair?

Please leave a comment below and click the like/share buttons

About Rachel Hunter TraderRachAbout the Author: I’m Rachel Hunter, TraderRach, a Forex Trader who helps traders achieve the life they love with forex.  Be strategic and design your trading business for sustainable success and have fun!  That’s my mission.  Join many traders’ gaining the edge with “10 Powerful Lessons for Forex Trading Success” plus other goodies.  Years of precious learning specially packaged up for you.  My background before trading is as a Chartered Accountant and Chief Financial Officer.   I know what it takes to make a trading business rock on.  It would give me great pleasure to make a difference to your success.

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Categories: Forex Market, NZD

2 Responses so far.

  1. robert nix says:

    Hi Rach:a most interesting report and arresting pic too.
    Surprised that ‘quake insce. is available as quakes are similar to floods with damage massive and localized.Govt. is the insurer of last resort. ( i sent a contribution for Christchurch relief as my son-in-law is a Kiwi)
    Heard about Fonterra –we had a big beef plant in Alberta with similar problems and it took a big effort before it could export again.
    Notice that the NZD’USD pair has traded between .77 and .81 since mid-June,and now (wed 2 p.m) about .79.I imagine if your govt.borrows for reconstruction then interest rates and the NZD will tend to move up.Your $ looks like a better performer than the AUD and also, in the stock market ENZL(NZ ETF) has outpaced EWA (AU ETF)
    My thoughts for today ! Regards,

    • Hi Robert

      We have EQC in New Zealand, an earthquake commission. A portion of our insurance each year gets paid to EQC. With these recent earthquakes money is being paid out of EQC and spend on repair and construction. That’s very kind of you to contribute.

      New Zealand has sound underlying fundamentals in areas where there is strong potential future growth in the markets and prices. However, as with everything, New Zealand is at risk for how we compete globally. Anything can happen but we’re well placed.

      As it turned out, the Fonterra incident was exacerbated by poor communication on the company’s part. Fortunately the risks to health were not as bad as what we were first lead to believe.

      Later on the day I posted this article, New Zealand legislated to restrict lending by banks to require a minimum 20% deposit on most mortgage lending. This is an action to try and lessen the pressure on strongly rising house prices. This may indirectly reduce the pressure to increase interest rates and the flow on effect on the NZD exchange rate. Time will tell if it’s effective at all.

      Cheers Rachel

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