NZD/USD in Detail: How to Trade Kiwi Dollar?
NZD/USD: brief history
The full name of NZD is New Zealand dollar (NZ$). Its story began in the 1970-s as a result of talks inside the International Monetary Fund. There were made several decisions about free conversion via a floating rate based on the supply-demand balance in the market
Until 1967, the New Zealand national currency was bound to the British pound and called New Zealand pound. In 1967, New Zealand dollars were first printed and bound to the exchange rate of the USD. In 1973, the floating bind to the American dollar changed for a bind to a basket of the currencies of the main trade partners. However, even such an alteration in dependence did not save the economy of New Zealand from major crises of the 20th century. Nonetheless, NZD/USD is nowadays one of the 8 most popular currency pairs in For example. Among traders, this pair is frequently referred to as Kiwi dollar because this bird is imprinted in a 1 dollar coin. Kiwi is a national symbol of New Zealand.
What influences NZD/USD
The national currency of New Zealand is a highly-profitable commodity currency. Its movements in Forex correlate with oil and gold. A major economic partner of New Zealand is Australia, hence, all macroeconomic events in Australia are directly reflect my in the NZD rate. Simultaneously, the NZD correlates with the USD, which means American macroeconomic indices influence the NZD as well.
The Central Bank of New Zealand struggles against excessive strengthening of the national currency in order to support export. This often leads to increased market volatility of the currency.
The Central bank of New Zealand publishes the main data once a quarter and files a final report annually. Hence, the market has a good chance to use this pair as a safe-haven asset. Traders successfully use the carry trade strategy to make a profit on the Kiwi dollar.
How to trade NZD/USD in Forex?
You can trade NZD/USD by fundamental analysis, tech analysis, or indicators.
Trading by fundamental analysis
Fundamental factors are:
- economic news
- political news influencing the economy
- decisions of the CB on the interest rate.
You can trade short-term on economic news or medium-term on political events and CB decisions on the interest rate. As an example, see attached a D1 at the moment when the interest rate decision was announced on August 20th, 2021.
The market started growing on August 20th right when the CB announced that it was going to leave the interest rate at 0.25%. At the same time though they promised it would have risen to 0.5% by the end of the year and to 2% by 2024. The market thought of this news as of positive and started buying. As you see, the price grew quite noticeably, which means market players will soon take the profit. Another factor that influenced traders was the growth of quotations in commodity markets.
Trading by tech analysis
Tech analysis includes using a classic approach to charts by such authors as Elliott, Williams, Raschke, etc., as well as use of various tech analysis patterns: Triangle, Wedge, Head and Shoulders, etc. For example, look at the chart of NZD/USD starting March 20th, 2020.
The structure of an Elliott wave starting forming on March 15th, 2020, almost at the same time that the beginning of the COVID-19 pandemic was announced. The NZD starts forming its Elliott wave (see the wave marks above).
The use of indicator strategies implies using trading signals generated by indicators in your trading terminal. For example, see below the use of a classical MACD.
The indicator forms signals to buy and sell on the chart, and the trader decides which trading operations to make in order to make profit. Learn more about the MACD in a separate article about this indicator.
NZD/USD is a major pair that is frequent in the portfolios of most traders. High volatility attracts market players from all over the world. However, to make a profit, you need a good trading strategy that goes by the rules of Forex trading. For signals, you can turn to the standard set of indicators installed to MetaTrader 4 and MetaTrader 5. Try to use at least two indicatore so that the second one confirmed the signals of the first one. Set up the indicators for your trading strategy specifically.
I recommend beginners creating their own trading strategy and testing it on a demo account. If the results are good and stable, start working on a real account.
Good luck with your trading!