New Zealand Economy: What To Know
If you have just started to explore the world of trading, currency pairs based on the New Zealand dollar may be some of the options offered by your broker. Trading currency pairs will give you the opportunity to learn things about currencies you may have never heard of before. The New Zealand dollar may not be as popular as the US dollar, the British Pound or the Euro, but it is one of the most traded currencies in the world. As the Reserve Bank of New Zealand (RBNZ) is in the process of tightening its monetary policy, it would be good to learn some things about New Zealand's economy.
This blog aims to give you valuable insights regarding the New Zealand dollar, the country’s economy and prospects.
What should you know about New Zealand’s economy?
The New Zealand dollar is nicknamed “Kiwi” by many traders, and some reports suggest that it is the tenth most traded currency in the world. New Zealand’s currency is also used in some Pacific islands such as the Cook Islands, Pitcairn Islands etc.
The RBNZ issued the first banknotes in 1934. The RBNZ’s dual mandate is to achieve and maintain stability in the general level of prices over the medium term while supporting maximum sustainable employment.
Australia is close to New Zealand, which makes it easier for the two countries to trade. More than 16% of products sold by New Zealand go to Australia every year, and 13% of its imports come from Australia.
But it's important to know that Australia is not New Zealand's biggest business partner. Most of New Zealand's trade is with China. In fact, New Zealand sends 20% of its goods to China every year, and China is the source of 17% of its imports.
Some stats about New Zealand’s economy
According to data provided by the World Bank, the New Zealand economy is the 49th largest in the world in terms of nominal gross domestic product (GDP). A survey conducted by the Organisation for Economic Co-Operation and Development (OECD) noted that New Zealand’s government debt stood at 52.8% of the national GDP. The latest New Zealand economic snapshot released by the OECD showed real GDP growth is projected to slow to 1.0% in 2023 and 1.2% in 2024.
The International Monetary Fund’s (IMF) latest World Economic Outlook forecasts the New Zealand GDP to expand by 1.1% in 2023 and 0.8% in 2024; it should be noted that the New Zealand economy grew by 2.4% in 2022.
RBNZ tightens monetary policy
In mid-April, New Zealand’s Finance Minister Grant Robertson told CNBC reporters that the country might have a recession, but it would be a shallow one while insisting that the Oceanian country has a robust and resilient economy.
Statistics New Zealand Q1 2023 CPI inflation report showed a welcome downside surprise, rising 1.2% on a quarterly basis and 6.7% on a year-to-year basis, well below the consensus of 1.5% and the RBNZ’s estimate of 1.8%.
The RBNZ has undertaken its most aggressive policy tightening since 1999, when the official cash rate (OCR) was introduced, lifting it since October 2021 to 5.25%. The latest 50 basis points rate hike surprised most market analysts who had suggested that New Zealand’s central bank could even pause its monetary tightening policy due to bad weather conditions that created problems in March. It should be noted that none of the economists polled by Reuters a few days before the RBNZ meeting had forecast a 50 bps rate hike.
The RBNZ’s governing board made clear its aggressive stance in its post-meeting announcement, published on April 5th, noting: “On balance, recent data, including a fall in GDP in the December 2022 quarter, suggest the level of economic activity is lower than assumed in the February Statement. Committee members observed that inflation is nevertheless still too high and persistent, and employment is beyond its maximum sustainable level. The Committee agreed it must continue to increase the Official Cash Rate (OCR) to return inflation to the 1-3 percent target and to fulfil its Remit.”
Trading the New Zealand dollar and risk management
The New Zealand dollar currency pairs such as NZD/USD, NZD/GBP or even AUD/NZD are frequent financial news articles topics. In the world of trading, the New Zealand dollar is a currency that draws attention as it is closely related to commodity trading, and due to the correlation of the country’s economy with Australia and China.
Risk management is essential for each trader, but especially for novices, regardless of the traded instruments. You may be at risk of a financial loss if you are just starting out in trading since you probably lack the necessary experience to make sound and informed decisions. Using risk management techniques can help you become a better trader and increase your chances of success. Stop-loss orders and other risk management trading tools can be used to reduce exposure to loss. This would allow you to relax and think clearly while you make changes to your trading plan.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.