new-zealand-money

The New Zealand Dollar (NZD)

The New Zealand dollar’s performance in the global forex market has remained consistent. Here’s all the information you need about this currency’s value and history.

The New Zealand dollar is the official currency of New Zealand, including the territories of Niue, Ross Dependency, Tokelau and Cook Islands, as well as the British Overseas Territory, Pitcairn Islands.

Maintaining strength as a major commodity trader, New Zealand currently accounts for around 2% of the global exchange market turnover. The New Zealand dollar is not tied to gold or precious metals and is instead entirely dependent on the amount of money in circulation.

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Currently, this is around US$5 billion in coins and banknotes. This dependency on currency circulation has caused periods of stark inflation and intermittent deflation throughout the history of the New Zealand economy.

The official sign for the New Zealand dollar is NZ$; as well as a lowercase “c” for cents. Its official label in forex trading is NZD.

History

The Reserve Bank of New Zealand is responsible for maintaining price stability, promoting a sound and efficient financial system, and fulfilling the currency requirements of the New Zealand public.

Formed in 1934, the bank wasn’t always solely responsible for the nation's financial system. Prior to its formation, the UK oversaw monetary policy and the issuing of currency to the public. Once established, the Reserve Bank distributed the New Zealand Pound, which was viable currency until its replacement in 1967 with today’s dollar at a rate of two dollars to the pound.

Value and exchange

The New Zealand dollar was initially pegged to the US dollar and NZ$1 was valued at US$1.43. In November 1967, after the British pound’s devaluation, NZ$1 traded at US$1.12. In 1971, the US decided to devalue its currency in relation to gold, and by December of that year, NZ$1 was pegged at US$1.216, with a fluctuation range of 4.5%.

In between July 1973 to March 1985, a trade-weighted basket of currencies called the trade weighted index (TWI) determined the value of the New Zealand dollar. In September 1974, Australia decided to peg its currency against the TWI to try and minimise fluctuations that arose because of its peg to the US dollar. In November 1976, the peg to the TWI changed to a moving peg, which led to periodical adjustments in the peg’s actual value.

In March 1985, the New Zealand dollar switched to the floating exchange rate system, and NZ$1 initially traded at US$0.444. Since then, financial markets have determined the currency’s value with its value against the US dollar fluctuating from around US$0.40 to US$0.88. Towards the end of the 1990s, the US dollar started to lose its overall influence over the value of the New Zealand dollar and the Australian dollar against other currencies.

Currency trading tends to have a significant impact on the value of the New Zealand dollar. In June 2007, the Reserve Bank of New Zealand ended up selling an undisclosed amount of New Zealand dollars for nine billion US dollars with the aim of decreasing the New Zealand dollar’s value. This was the first time the bank intervened in the exchange markets since it joined the floating system.

After joining the float regime, the New Zealand dollar reached its record high in early 2008. The global economic downturn resulted in its value plummeting through much of 2008’s second half as well as in the first few months of 2009. In March 2009, the New Zealand dollar bottomed out, trading at US$0.50. Following a revival of sorts, in November 2009, it rose to the US$0.75 mark. In late 2012, the New Zealand dollar was valued at over US$0.80, even getting to US$0.85 at times.

2014 was a high note for NZD/USD trading as it was for neighbouring Australia. The subsequent depreciation was reflective of the fall in value of each countries’ respective export commodities. Due to its $11 billion dollar dairy industry, the New Zealand dollar tracks the global dairy price.

The table below shows how the New Zealand dollar has performed against some other popular currencies.

1990200020102016
US Dollar0.59610.42040.72160.6972
EuroNA0.49350.54420.6289
Pound Sterling0.33540.30070.46680.5151
Canadian Dollar0.69550.67680.74330.9229
Australian Dollar0.76380.78450.78530.9365
Japanese Yen86.3349.1563.2875.51
Indian Rupee10.4320.4632.9346.81
Pakistan RupeeNA23.5961.4772.85

*Figures as of December 18, 2016.

USD/NZD is a major currency pair, also known as ‘The Kiwi’; this pairing gained momentum in forex trading during the commodity boom of the early 2000s.

AUD/NZD is a less popular pairing, although it is also considered low-risk. In large part, the low-risk nature of the pair is due to the similar trade value of each currency in the global market. Both economies are deeply reliant on commodity trading, with their security similarly tied to them.

Historically, the New Zealand dollar experienced an all-time high in October 1973 at 1.49 NZD/USD and an all-time low in October 2000 at 0.39 NZD/USD.

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Coins and notes

The Reserve Bank of New Zealand retains legal authority over production and distribution of the official banknotes and coins that make up New Zealand’s currency.

There are five coins currently circulating: 10 cents, 20 cents, 50 cents, 1 dollar and 2 dollars. The smallest denomination coin is copper plated steel and the 20 and 50 cent coins are nickel plated. The 1 and 2 dollar coins are made of an aluminium bronze composition that gives them their golden colour.

Currently, New Zealand banknotes are available in denominations of $5, $10, $20, $50 and $100. Since their inception in 1967, New Zealand banknotes have seen seven series, experiencing minor changes to design, security and material composition.

In 1999, the Reserve Bank began disseminating polymer banknotes - a type of polypropylene plastic. Previously all banknotes had been printed on a paper made from cotton.

Each banknotes has a series of security features to help people identify counterfeit currency. These include raised ink, holographic features, windows with metallic foil and microprinting.

Shirley Liu

Shirley is finder.com.au's publisher for banking and investments. She has completed a Masters in Commerce (Finance) and is the author of hundreds of articles. She is passionate about helping Aussies make an informed decision, save money and find the best deal for their needs.

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