Forex trading in New Zealand - 10 fascinating facts you should know
Forex trading in New Zealand is quite interesting if you read more about it.
When you hear about this country, the first thing that comes to mind is the movie, The Lord of the Rings.
But there is more to New Zealand than its scenic beauty. Forex trading is popular in New Zealand, for traders as well from a forex broker perspective.
Upon hearing the term forex trading, one thinks of places like the US, UK or even Hong Kong. No doubt, places like London and New York boast of the highest forex trading volumes.
While these forex hubs dominate the market, New Zealand holds its ground. New Zealand forex brokers are reputable for being safe and secure.
This is a detailed guide about the foreign exchange markets and New Zealand. We will cover all the bases such as
- the currency
- monetary policy
- forex brokers
- trading platform that you can use
- trading strategies for the NZD
along with some interesting facts, we bet you didn't know.
To trade with a New Zealand forex broker or to trade the NZD currency pairs, this guide is where you start!
Without much further ado, let's dive into the world of forex exchange and New Zealand. Here are the ten interesting facts about forex trading in New Zealand.
1. What is the New Zealand dollar?
The New Zealand dollar is the legal currency of New Zealand.
The three letter ISO code is NZD. In forex trading circles, the NZD is also known as the Kiwi dollar.
New Zealand is not one big island but comprises of about 600 islands. The New Zealand dollar does not rank in the top 7 currencies (known as G7 currencies).
Yet, it is one of the top 10 traded currencies in the world.
A typical forex trading session starts with the opening of the Wellington trading session
New Zealand time zone is UTC+12 (Summer time) and UTC+13 (Winter time).
The foreign exchange trading hours are round the clock. There is an overlap between the U.S. market closing hours and the Wellington forex sessions.
Although some traders refer to the NZD/USD as a major currency pair, it is in fact wrong. The NZD/USD is not a major currency pair. But it is one of the top 10 most traded currencies in the world.
Traders can use any trading platform to, day trade the New Zealand dollar.
The top forex trading currency pairs for New Zealand are:
Each of these currency pairs has its own characteristics. All trading platforms allow you to trade the NZD currency pair.
2. Brief history of the New Zealand dollar
Did you know that the New Zealand dollar is one of the youngest in the world?
Before 1967, the official currency of New Zealand was the New Zealand pound. One NZD pound was equal to 20 shillings and one shilling was equal to 12 pence.
It was only after the New Zealand Decimal currency act of 1964, did the nation switch to the New Zealand dollar. And the decimal format we know of today
The NZD was first pegged to the U.S. dollar at a fixed rate of 1NZD = 1.43USD.
After the US broke off from the Gold Standard, the NZD turned to a trade weighted basket peg.
It was only since 1985 that the Kiwi dollar became a free floating currency.
The Kiwi dollar is a nickname given to the NZD.
The name comes from the Kiwi bird, which is the national bird of New Zealand. You can see a picture of the kiwi bird on the NZD$ 1 coin.
In forex, a reference to the Kiwi dollar is a reference to the New Zealand dollar or NZD.
One NZD is equal to 100 cents.
The Reserve Bank of New Zealand manages the NZD currency.
New Zealand has banknotes set in five denominations, start from $5, $10 and all the way up to $50 and $100. If you want to see how the New Zealand dollar bank notes look like, click here. There are also five coin denominations.
The smallest being the ten cents coin, while the largest coin denomination is the $2 coin.
4. The Reserve bank of New Zealand
The Reserve bank of New Zealand is an 87 year old institution.
The RBNZ was set up in 1934 and it is not a government department. The RBNZ is only a policy making body. But it holds policy meetings and engages in foreign exchange interventions.
New Zealand is an export oriented economy. So, it is important for the exchange rate to be lower than the currencies for countries it exports to.
To manage this, the RBNZ intervenes by selling or buying the kiwi dollars. This ensures that the NZD does not appreciate or depreciate too fast.
The RBNZ's monetary policy targets inflation. This policy is different when you compare with other central banks.
For example, the US Federal Reserve follows a dual mandate monetary policy. The Federal Reserve bank is responsible for price stability and economic growth.
The RBNZ controls inflation by raising or lowering interest rates. The central bank calls this OCR of the Official Cash Rate.
When you are trading forex pairs with NZD, the OCR or the interest rate is an important factor.
The RBNZ monetary policy decision
Forex trading for the New Zealand dollar can be tricky due to many reasons. It is because of its geographical location.
There are many economic indicators that influence the NZD. But the RBNZ's monetary policy decision has the biggest impact.
Trading liquidity is generally low around the time the RBNZ holds its meeting.
Around this time, the European session is already closed, and the US session is in the final hours of trading. Thus, any big decisions from the RBNZ monetary policy meeting can move the NZD forex pairs.
In general, the central bank meets four times a year. This is when it also publishes the Monetary policy statement (MPS).
This statement contains details such as economic projections and forecasts. It is during these MPS meetings that the RBNZ decides on interest rates.
5. New Zealand dollar is the 10th most traded currency
According to the data from the Reserve Bank of New Zealand, the NZD is the 10th popular currency in forex.
This is a steady improvement comparing to the previous study dates. New Zealand also accounts for close to 2.1% of the average daily turnover.
The data comes from the foreign exchange statistics at the Bank for International Settlements. The next report is due in 2022.
Forex Statistics New Zealand
The data shows that forex trading in New Zealand is quite popular. It is also evident by the fact that there many forex traders in New Zealand.
Even the forex brokers having a New Zealand forex license is also rising. So, there are a lot of forex broker with a New Zealand forex license.
6. New Zealand Forex Regulators - FMA & FSPR
Regulations and oversight for forex brokers in New Zealand is quite stringent. Thus, it makes for a safe jurisdiction for forex brokers.
This also means, peace of mind for forex traders, not only in New Zealand but around the world.
A forex broker based in New Zealand should be in compliance with the local guidelines. The Financial Markets Authority or FMA enforces the rules. You can visit their website to learn more if you wish to.
The Financial Markets Authority is a government agency in New Zealand. This institution is responsible to enforce securities trading guidelines. Other tasks include financial reporting oversight and audit of the forex brokers.
Besides the oversight of the financial markets authority, there is also a registry. New Zealand forex brokers must also register with the financial service providers register. This is also referred to as the FSPR.
The financial service providers register is a business directory, catering to the financial services sector in New Zealand.
So, when a forex broker registers in New Zealand, they will enter the FSPR registry.
The FSPR directory is a good way to verify if a forex broker in New Zealand has a legitimate business or not.
You can lose money when trading forex and other financial markets. Hence, it is important to trade with a regulated forex broker.
Benefits of trading with a New Zealand regulated broker
If you think all forex brokers are the same, then you are wrong.
Depending on the jurisdiction where a forex broker has their license, they can differ. A unique feature with New Zealand licensed forex brokers is you can use high leverage.
It is rare these days, as many European licensed forex brokers limiting their leverage to 1:30.
While one might argue the risk of higher leverage, this can be good if not abused.
We know that trading forex carries a high risk of losing. When the trading leverage is lower, you need to deposit more trading capital. But with a higher leverage, you can trade with a small amount.
Because of the risk of losing money, a trader can deposit as little as $10 to get a feel for trading currencies online.
Many NZ based forex brokers offer contracts for difference cfd trading. Cfds include forex currency pairs, international securities, commodities and many more.
You can trade these instruments with a trading platform such as the metatrader 4 or cTrader.
7. Trading strategies to use for trading the NZD forex markets
As mentioned earlier, the NZD is a rather unique currency. It is also more volatile comparing to the other majors like the eur usd.
The chart below shows a volatility comparing among the different USD currency pairs.
New Zealand dollar volatility comparison to other currencies
The NZD ranks right at the top when you look at the daily and weekly periods in foreign exchange trading.
When a currency pair is volatile, there are many buy and sell opportunities a trader can find.
In fact, the more exotic you go, the higher the volatility. The next chart below shows the most volatile NZD currency pairs.
Most volatile NZD currency pairs
The NZDJPY has the highest volatility among the different instruments in forex trading. But remember that a volatile fx pair also increases the risk of losing your money.
For technical analysis for NZD, you can apply any regular techniques such as:
Trend following: Trend following methods for NZ currency can work during strong trends. This is possible with some non USD based NZD forex pairs.
Breakout trading: is short term trading strategy that gives rapid results. Breakout works best with NZDUSD, especially in the early Asian trading forex session
Scalping opportunities: Scalping the NZD is easy because of its volatile nature. You can find NZDUSD scalping opportunities at the start of the NY trading session. For EURNZD, you could focus on the European trading session.
Trading platforms to use for trading Kiwi fx
There is also a mobile trading app for these platforms.
It enables you to apply NZD technical analysis and trade. You can then consider if you understand the peculiarity of trading with NZD base fx pairs.
Using a forex demo account, you don't risk trading with real money. This will help you become familiar with the NZD forex trades.
8. Is it safe to trade with brokers in New Zealand?
Because forex trading has a high risk of losing, it is important to have the right forex broker on your side.
As per the financial markets regulation, forex brokers with NZ license are safe to trade with.
One question that comes to mind is about customer support. You might think that support may not work, if you are living in Europe for example.
But this is not true. Many of the best forex brokers in New Zealand offer customer support round the clock.
So, whether you are living in the UK or in South East Asia, you can find good customer support.
What makes these brokers good for trading forex is the fact that you get to choose your leverage.
Moreover, traders can choose from popular platforms like metatrader 4 and metatrader 5. Traders prefer these trading platforms to trade forex markets as they are easy to use.
Due to the popularity of the trading platforms, you can get many custom indicators.
Other trading platforms to trade NZD include cTrader and Ninjatrader.
9. You can trade forex & futures with NZD
Besides the forex markets, you can also trade the futures markets for NZD.
A futures market is different to trading CFDs.
Contracts for difference cfds are speculative instruments. Whereas traders use futures for hedging purposes.
Forex and cfds are different to futures, but there is a lot of inter-relationship between the two.
The futures market releases a weekly report called the Commitment of Traders report.
Forex traders use this report which shows the big positions in the market. You can also see whether they are net long or net short.
You can use the CoT indicator on trading platforms like metatrader 4, metatrader. A great way to analyze the market sentiment.
This information is helpful when trading forex and cfds. Many people think that cfds are complex instruments, when in fact they are not. You can make money when trading cfds with relative ease, as long as you understand how cfds work.
10. How not to lose money when trading forex in New Zealand
This last point is not a fact, but rather a combination of some tips and tricks in parting.
We know that retail investor accounts lose money over a period of time. Knowing how the markets work is important.
We give you trading tips on how to limit retail investor accounts lose money.
- The online forex market is risky. And with a volatile currency such as the NZD, you take a significant amount of risk. Be aware of this!
- The New Zealand financial sector is a safe environment for a regulated broker. You can rest assured when using an NZ licensed forex broker.
- Depending on the platform, some brokers can offer low spreads. Use this to your advantage
- Carry trade is no longer in vogue with interest rates cut across the board. So look to other ways to trade the NZD
- Use a good trading platform like MetaTrader 4, which some of the best forex brokers offer
- Always start trading with a demo trading account. Although you can use huge leverage, keep it realistic. Stick to leverage of not more than 1:100
- You can use higher leverage such as 1:500 only if you want to test trade the platform or check out the broker. This high leverage gives you the chance to trade with a min deposit of $10