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Buying New Zealand Dollars

If you are moving to New Zealand and need to buy New Zealand dollars, this weeks movements may mean there is some light at the end of the tunnel. Many people moving to New Zealand will remember when the exchange rate was at £/NZD 2.80 just over 14 months ago; the same people will no doubt have seen the exchange rate plunge to £/NZD 2.03 in May 2010. A difference of 77 cents or, more frighteningly, NZD 77,000 less New Zealand dollars for £100,000 in May 2010 than March 2009.

This week a new 6-month high was set by Sterling against the New Zealand dollar at £/NZD 2.2250, as the New Zealand dollar has remained vulnerable following the decision by the Reserve Bank of New Zealand to raise interest rates by 0.25% to 3% on 29^th July.

It could be expected that the New Zealand dollar would strengthen as interest rates were increased as a higher interest rate offers investors a better yield on their funds however; it seems it was the accompanying statement that did the damage. The Governor of the Reserve Bank of New Zealand, Alan Bollard, said that future rate rises would be slower in pace due to concerns about future growth.

In the build up to interest rate announcement, Sterling was trading around £/NZD 2.10. On the 16^th August, Sterling set a new 6-month high. With the Reserve Bank of New Zealand not forecast to raise interest again until December, when we believe rates will increase by 0.25% to 3.25%, will the New Zealand continue to slide?

Comments from New Zealand’s Finance Minister, Bill English, that the recovery is "patchy" and that consumer cautiousness is slowing the recovery has helped Sterling set the new six month high. It could be argued that the strength of the Kiwi dollar, not just against Sterling but also the US Dollar, has had a detrimental effort on the economy as exports are more expensive.

Since the increase in interest rates at the end of July, economic data from New Zealand has had a subdued tone from disappointing retail sales and falling employment, coinciding with the falling Kiwi dollar. Longer-term, continued poor data and concerns over the US recovery will keep the Kiwi dollar under pressure.

Due to the sheer size, number of participants and the number of factors that can affect the currency markets, it is impossible to predict movements in the exchange rate with any certainty.

If you are looking to buy New Zealand dollars not only do you want to receive the most competitive exchange rate when you buy, you also need to be aware of movements in your favour.

Using a market order to maximise favourable movements is one strategy available where you can specify a particular rate you wish to buy New Zealand dollars at; when the market hits that level your trade will automatically be completed. In conjunction to using an order, you can also place a stop which is your back-up so if the market doesn’t reach your order, you have protected your downside.

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