The New Zealand dollar was the best performing of the FX majors in May. By the month’s end, the currency had gained 2.9% against the US dollar, beating a resurgent euro, which gained 2.6%, into first place. The rapid appreciation of New Zealand’s currency, which has been attributed by Citi Bank to improving trade, strength in dairy prices and record highs in US stocks (indicative of receding market risk), has continued in the first seven days of June – a period in which the New Zealand dollar has once again outdone the rest.
As of yesterday’s close, the New Zealand dollar is up 1.8% so far in June against the US dollar. This comfortably sees off the second best performer, the Australian dollar (up 1.3%), and also the Japanese yen (up 0.4%) and Canadian dollar (up 0.2%). The other three FX majors have all made losses so far this month against the ‘greenback’, the worst of these being the British pound, which was hammered on Friday as it became clear that voting in Thursday’s UK general election had produced a hung parliament, and the currency is down 1.2% on the month.
The most interesting thing about the strength in New Zealand’s currency is perhaps that it comes in spite of a complete absence of any significant data or news events from the country.
In fact, between June 1st and June 9th, the only piece of significant New Zealand data to be released has been the growth number for the GDT Price Index, but this was significantly down on the previous reading (growth of 0.6% for the two weeks to June 6th, versus prior growth of 3.2%) and was overlooked by the market.
In stark contrast to this, news and data from other countries has been substantial. We’ve had a UK general election, US and Canadian jobs data, Australian retail sales, multiple PMIs, an ECB and RBA meeting, Japanese and Australian GDP, and a host of other lesser, but still impactful, numbers and events.
It seems that in the absence of anything to stop it, the New Zealand dollar has benefitted from calm waters and a period of smooth sailing, while other currencies have tripped over themselves repeatedly. Remember Newton’s first law: once set in motion, an object will keep moving forward forever unless there is friction to slow it down.
Investors will have to wait and see what next week’s New Zealand GDP release brings. Could that be the friction needed to halt the kiwi’s climb?
Make the Most of NZD While It’s Strong
Whether it is GDP or something else, in the coming weeks something will provide the necessary friction to halt or reverse the New Zealand dollar rally. Nothing goes up forever.
With the currency reaching a seven-month high against the Canadian dollar yesterday (NZD/CAD 0.976), a three-month high against the US dollar on Thursday (NZD/USD 0.722), and holding at prices throughout the week against the Australian dollar which haven’t consistently been seen since mid-February (NZD/AUD 0.958), as well as being at multi-month highs against a host of other currencies, now makes a great time for those in New Zealand to make plans for overseas trips, get hold of foreign currency for travelling, remit money home to family and/or make international payments.
Let’s also not forget Citi Bank’s prediction two weeks ago for a fall in the NZD/USD exchange rate to 0.68 (a 5.7% fall from yesterday’s close) over the coming 6-12 months.
By changing money today, holders of New Zealand dollars will position themselves ahead of any depreciation in their currency’s value and maximize its buying power.
Readers can use BestExchangeRates.com’s online comparison calculators for travel cash and foreign currency transfers to change their money at exchange rates better than those available at a typical bank or Bureau de Change.
Disclaimer: Please note any provider recommendations, currency forecasts or any opinions of our authors should not be taken as a reference to buy or sell any financial product.