The New Zealand dollar or Kiwi dollar is the official currency of New Zealand. Capping off the top 10 of the most traded currencies in the world, the Kiwi is the 10th most traded currency representing approximately 2.1% of the global currency traded. This is an outsized representation on the global scale as this market share greatly exceeds New Zealand’s relative share of global population and GDP. The currency falls in the bottom of the top 10 in part because it is not a major reserve currency, as its use is limited to New Zealand and minor territories.
The currency heavily relies on the balance of trade between New Zealand, and its primary trading partners Australia and China. This trade is composed mainly of agricultural produce, oil, and cars. There are more than $7.32 New Zealand Kiwis in circulation.
Just prior to the global financial crisis of 2008, the NZD faced a major crisis in 2007. The Reserve Bank of New Zealand sold an unreported amount of cash for 9 billion USD in response. This was the first government intervention in monetary policy since 1985. They followed up this intervention with two subsequent actions. These two moves were not as successful as the first had been.
In 2008, the currency plummeted in the wake of the global downturn. Investors ran away from the currency as it was considered a riskier currency at the time. However, by 2009, it had rebounded strong and finished that year quite strong. Since then, it has remained relatively stable.
The pandemic hit the New Zealand economy hard. Around mid-March of 2020, the government imposed an economic lockdown on most of the countries business. The only areas that were exempt were essential businesses such as supermarkets. However, the swift implementation of lockdown and corona-related regulations worked, and the limits were progressively lifted in April, May, and June.
However, in September, the economy officially entered into a recession. The pandemic had caused the country’s GDP to contract by 12.2%. The strict lockdown and international travel ban that had been imposed at the beginning of the pandemic hit retail, accommodation, hospitality, and transportation incredibly hard.
After weathering the initial trouble of covid and lockdowns, New Zealand was able to contain and control the virus, which led to sharp economic growth. The country ended 2020 with an economic expansion of 0.4% instead of a contraction of 1.7%, which many economists predicted. The V-shaped recovery also led to a drop in unemployment as of December 2020, which was down from a covid high of 5.3% in September of 2020.
When countries had sharp increases in coronavirus cases, their currencies generally weakened as a result of lockdowns and other restrictive measures. When countries made progress on containing the virus, those respective economies generally strengthened. As we just noted with the impact of covid on New Zealand, this same logic held with the Kiwi.
Although we’re not out of the pandemic yet, it will take more time before the trajectory of the New Zealand economy is known with more certainty. However, the initial recovery has been impressive and a model for other countries around the world. It is predicted that the economy will stay relatively stable. If, however, the economy begins to show signs of slowing, the Reserve Bank has shown a willingness to cut interest rates.
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