02 Jan TRADING EDUCATION: GBP NZD
The GBP NZD is known colloquially within forex trading as simply the “Pound-Kiwi” as the $1 coin of the currency depicts a kiwi bird. NZD is also sometimes referred to as NZ$ to distinguish it from other dollar-denominated currencies. Both the GBP and NZD are among the top ten most traded in the world in terms of value and volume.
Following the 2008 financial crisis most developed nation’s central banks issued significant stimulus packages using QE and asset purchasing which has led to some of the lowest bond yields in history. As a result, we have seen capital flight away from these economies towards currencies that offer higher yielding assets. The New Zealand economy and the NZD is one of the clearest examples of this, but with the Fed’s move to end asset purchases in combination with slower growth in China, the four-year trend may be showing signs of stalling.
The performance of the GBP NZD is heavily impacted by the correlation between the two economies. The pair is known for its volatility and the erratic nature of its sizable market movements, and this means that it must be handled with extreme caution. The GBP NZD currency pairing is not frequently traded by self-employed traders. However, experienced traders willing to take a higher risk threshold can make significant profits from the pair.
The Reserve Bank of New Zealand rarely intervenes in the market, however the NZD can be heavily affected by visitor numbers and the price of dairy and timber. The NZD is also very reliant on the prices of agricultural raw materials around the world, as up to 40 per cent of the country’s exports are farm produce.
Whilst the New Zealand economy does still have trade links with the UK, much of its major business comes from neighbouring countries such as Australia (AUD) and south east Asia. This means that, whilst the NZD is heavily influenced by economic conditions within Australia, China and the wider Asia-Pacific area, the GBP NZD can also be heavily affected by economic releases from the United Kingdom.