In our last lesson we continued our discussion of the world's main commodity currencies with a look at the major fundamental factors which affect the Australian Dollar. In today's lesson we are going to wrap up our discussion on commodity currencies as well as our modules on profiles of the worlds main currencies, with a look at the New Zealand Dollar.
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:
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 we learned about in module 3 of this course, so interest rate expectations going forward will weigh heavily on the future direction of the currency.
Thats our lesson for today, and that wraps up our lessons on the commodity currencies, and other main currencies of the world.
Your details are strictly protected, safe and never be sold or shared. We hate spam as much as you do.
Any articles, systems, strategies, reviews, ratings, news, research, analyses, prices or other information contained on this website, by Aboutcurrency.com, its partners or contributors, is provided as general market commentary and does not constitute investment advice. Aboutcurrency.com will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
Risk Disclosure: Trading forex on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.