How will the New Zealand dollar perform over the next three years? An essential analysis guide for NZD investors

Understanding the New Zealand Dollar: A Major Global Commodity Currency

The New Zealand dollar (currency code: NZD), also known as the Kiwi, is one of the most traded currencies worldwide, with the NZDUSD currency pair ranking ninth in the global forex market. In 1985, New Zealand adopted a floating exchange rate system, ceasing to publish official buy and sell rates, allowing the currency’s value to be determined by market supply and demand.

The NZD/USD quote is expressed as X USD per 1 NZD. For example, if the exchange rate is 1.50, it means you need 1.5 USD to buy 1 NZD.

Why Has the New Zealand Dollar Plummeted? An In-Depth Analysis of Four Major Factors

Since reaching a high of 0.88 USD in 2014, the NZD has fallen to around 0.5 USD, a decline of approximately 32%. Behind this decline are complex economic reasons.

First, Fluctuations in Agricultural Commodity Prices

New Zealand’s economy is highly export-dependent, with agricultural products, dairy, and wool accounting for over two-thirds of exports. As a typical commodity currency, the NZD’s movements are closely linked to the prices of these bulk commodities. When international agricultural prices fall, it directly impacts New Zealand’s export income, subsequently dragging down the currency.

Second, Continued Weakness in the Tourism Industry

Tourism was once a major pillar of New Zealand’s economy. Post-pandemic, this sector has been severely impacted, with foreign exchange earnings dropping significantly, exerting long-term pressure on the NZD.

Third, The U.S. Dollar Rate-Hike Cycle

The Federal Reserve’s ongoing rate hikes have strengthened the USD, widening the interest rate differential between the Reserve Bank of New Zealand and the Fed. When U.S. interest rates are more attractive relative to the NZD, capital tends to flow into USD assets, putting downward pressure on the NZDUSD cross rate.

Fourth, Global Sudden Events

As an export-driven economy, New Zealand is highly sensitive to global economic fluctuations. Any major geopolitical or economic crisis can disrupt export trade, further increasing the pressure on the NZD to depreciate.

AUD and NZD: Twin Commodity Currencies

Australia and New Zealand are both typical export-oriented economies, mainly exporting coal, iron ore, copper, aluminum, wool, and other industrial commodities. Due to this shared characteristic, the AUD and NZD are called “commodity currencies,” often moving in tandem—rising and falling together.

Following the global economic slowdown post-pandemic, both the AUD and NZD against the USD have fallen more than 10%. Observing their synchronized movements can help better understand the market logic behind the NZD.

Three-Year Outlook for the NZD: Finding Opportunities in a Bear Market

According to forecasts from major investment banks, the expected trend of the NZD against the USD over the next three years is as follows:

• Within six months: 0.594
• Within one year: 0.5934
• Within two years: 0.5885
• Within three years: 0.5834

In the long term, due to expectations of a global economic recession, the NZD may enter a bear market. Short-term bearish sentiment is more prevalent, and the downward trend may continue.

However, currency movements are not unidirectional. When demand for risk assets is strong, commodity prices tend to rise, prompting investors to increase allocations to high-yield assets while selling off low-yield USD, which can lead to a relative appreciation of the NZD. Currently, the USD shows resilience amid market volatility, and its future trajectory depends on Fed policies and key measures by the Reserve Bank of New Zealand.

Four Ways to Invest in the NZD

1. NZD Fixed Deposit

Exchange NZD at the Taiwan bank’s posted exchange rate and deposit as a fixed-term deposit. Upon maturity, convert back to TWD at the prevailing rate and receive interest. The advantages are simple operation and low risk; the downside is limited returns.

2. NZD Funds

Invest directly in NZD through forex funds managed by professional fund managers. Compared to fixed deposits, currency fluctuations have a greater impact, with higher risk and potential returns.

3. Forex Futures

Futures are derivative financial instruments where buyers and sellers agree on a price and date for transaction. The advantage is the ability to trade both long and short positions; the risk includes forced liquidation and margin calls, requiring investors to have strong risk management skills.

4. Contract for Difference (CFD)(

This is a flexible forex trading instrument that does not involve physical delivery. Compared to futures, CFDs require less margin and offer higher capital efficiency, enabling two-way trading. For commodity currencies like the NZD, the trend is relatively predictable, providing more short-term trading opportunities.

Core Currency Pairs for NZD Investment

Common NZD trading pairs include:

• NZDUSD (NZD / USD)
• GBPNZD (GBP / NZD)
• EURNZD (EUR / NZD)
• AUDNZD (AUD / NZD)
• NZDJPY (NZD / JPY)
• NZDCAD (NZD / CAD)
• NZDCHF (NZD / CHF)

Investment Advice and Market Outlook

As a commodity currency, the value of the NZD mainly depends on global demand for New Zealand’s export commodities. In the long term, economic growth, rising commodity prices, and improved forex income will support NZD appreciation. In the short term, key factors to watch include Fed interest rate policies, decisions by the Reserve Bank of New Zealand, and global bulk commodity price trends.

Investors should choose suitable instruments based on their risk tolerance before engaging in NZD-related trading. Regardless of the method, staying updated on important economic indicators released in economic calendars will help better grasp the key points of the NZD’s three-year trend.