NZD (New Zealand Dollar)

What Is the NZD (New Zealand Dollar)?

The New Zealand dollar (NZD) is the official currency of New Zealand. NZD is made up of 100 cents and is often represented by the symbol $ or NZ$ to set it apart from other currencies based on dollars. NZD also sees use in the Cook Islands, Niue, Tokelau, and the Pitcairn Islands.

Key Takeaways

  • The New Zealand currency is known as the New Zealand dollar (NZD).
  • New Zealand used to use the British monetary format, which was pounds, shilling, and pence, until 1967, when it switched to dollar-based money.
  • The New Zealand dollar went through a series of changes in a fixed exchange rate with the U.S. dollar until March of 1985 when the currency was allowed to float freely.
  • Since 1999, the New Zealand government has produced polymer or plastic versions of the New Zealand dollar, which has made the note more secure against counterfeiting.

Understanding the NZD (New Zealand Dollar)

Decimalization of the NZD (division into 100 cents) took place in 1967 when the New Zealand dollar replaced the New Zealand pound at a rate of two dollars to one pound. Initially pegged to the United States dollar, NZD went through a series of changes in the fixed exchange rate until March of 1985, when the currency was allowed to float freely.

New Zealand currency has had a long history of over 160 years. In fact, during the 1800s, New Zealand used its coins and banknotes before British currency was even legal currency. However, nothing was made official until 1933, when New Zealand issued their first official coins, based on the British pound, shilling, and pence.

The first coins had pictures of the native birds of New Zealand on the “tails” side, a tradition that has continued, with the British monarch on the head side.

The NZD is affectionately referred to as the 'Kiwi,' in honor of a flightless bird called a kiwi, which is pictured on one side of the country's $1 coin.

In 1934, the Reserve Bank of New Zealand was established, becoming the only supplier of banknotes. The original notes had a variety of designs, including that of a kiwi, the nation’s Coat of Arms, Maori King Tawhiao, and Fiordland's Mitre Peak.

It took another 30 years before the Reserve Bank replaced the currency of pounds, shillings, and pence with actual dollars and cents. In the year 1967 alone, the Bank printed 27 million new banknotes and 165 million new coins.

The NZD currency has a long history of colorful and vibrant money and, since its first issuing, has changed its printed design several times. In 1992, the images of Queen Elizabeth on all of the banknotes were altered to reflect prominent citizens of New Zealand such as Edmund Hillary, Kate Sheppard, Apirana Ngata, and Ernest Rutherford, along with local birds and plants on the backs of the notes.

Since 1999, the New Zealand government has produced polymer or plastic versions of the New Zealand dollar, which has made the note more secure against counterfeiting. In addition, the new polymer composition has increased the longevity of the note.

It is estimated that the polymer note lasts four times longer than regular linen or paper notes. Interestingly, the polymer note can go through a washing machine without suffering any material damage. In 2016, the currency had its most recent update, with even more bright colors and updated security features.

NZD/USD

The value of the NZD/USD pair is quoted as 1 New Zealand dollar per X U.S. dollars. For example, if the pair is trading at 1.50, it means that it takes 1.5 U.S. dollars to buy 1 New Zealand dollar.

NZD/USD is affected by factors that influence the value of the New Zealand dollar and/or the U.S. dollar in relation to each other and other currencies. For this reason, the interest rate differential between the Reserve Bank of New Zealand (RBNZ) and the Federal Reserve (Fed) will affect the value of these currencies when compared to each other.

When the Fed intervenes in open market activities to make the U.S. dollar stronger, for example, the value of the NZD/USD cross could decline, due to a strengthening of the U.S. dollar when compared to the New Zealand dollar.

The NZD/USD tends to have a positive correlation to its neighbor, the Australian dollar (AUD/USD).

The New Zealand dollar is considered a carry-trade currency in that it is relatively high-yielding so investors will often buy the NZD and fund it with a lower-yielding currency such as the Japanese yen or the Swiss franc.

Evidence of this was prevalent during the financial crisis when the NZD was one of many high-yielding currencies that fell during 2008 and 2009. Margin trading positions on the NZD/Japanese yen exchange rate rose steadily during 2007-08, as Japanese investors took advantage of the wide differential between New Zealand and Japanese interest rates.

During the turbulence in global financial markets during mid to late 2008, the cumulative net long positions held by Japanese margin traders in the NZD fell by nearly 90%.

Other factors affecting the NZD are dairy prices and tourism numbers. New Zealand is one of the world's biggest exporters of whole milk powder. This means that if milk prices are on the rise the New Zealand economy is likely to be doing well, which will push up the currency.

Tourism is another staple of the New Zealand economy. So as the number of visitors to New Zealand rises, the economy does well and the currency appreciates.

What Is the Abbreviation for New Zealand Currency?

The abbreviation for the New Zealand currency is "NZD."

Why Is the NZD So Strong?

The strength of a currency tends to fluctuate so the strength of the NZD may not always be so strong. However, overall, NZD is considered a stable currency due to the strength of the New Zealand economy and its outlook. Tourism is a strong economic driving force for New Zealand, so when tourism is doing well in the country, the currency will tend to be stronger. Other economic factors, such as growth rate, GDP, unemployment, and inflation are strong and, therefore, lead to a strong currency.

Are New Zealand Dollars One of the Best Currencies To Trade?

NZD is one of the most traded currencies in the world, making it a liquid currency in forex markets. New Zealand has a high FX turnover when compared to GDP due to international traders seeking yield, New Zealand having many companies and banks that are owned by international companies, resulting in currency swaps to minimize FX risk, export and imports being a large part of the New Zealand economy, and because New Zealand companies and organizations borrow heavily from international markets.

What Does New Zealand’s Currency Look Like?

Each banknote and coin of New Zealand's currency looks different. The currency usually has a bird on one side of a banknote or coin as well as an important historical figure of New Zealand. The currency also comes in very bright colors.

Article Sources

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  2. Reserve Bank of New Zealand. "About Polymer." Accessed Oct. 5, 2021.

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  5. Reserve Bank of New Zealand. "The History of Banknotes in New Zealand." Accessed Oct. 5, 2021.

  6. Reserve Bank of New Zealand. "Our Coat of Arms." Accessed Oct. 5, 2021.

  7. New Zealand History. "New Zealand Adopts Decimal Currency." Accessed Oct. 5, 2021.

  8. Reserve Bank of New Zealand. "Security Features of New Zealand’s Banknotes." Accessed Oct. 5, 2021.

  9. Reserve Bank of New Zealand. "Banknotes in Circulation." Accessed Oct. 5, 2021.

  10. Reserve Bank of New Zealand. "The New Zealand Dollar Through the Global Financial Crisis," Page 24. Accessed Oct. 5, 2021.