In this article we are going to discuss the Covid effect on the NZD. When the novel coronavirus broke out in Wuhan, China late last year, no one predicted that it would grow into a full-blown pandemic. A crisis that would bring global economies to their knees. Months later, different countries and jurisdictions have fared differently. New Zealand seems to be one of the nations that has fared better than others.
Current Covid-19 status in New Zealand
As of 30th October, only one new case of the highly infectious coronavirus has been reported. This is with an individual who was in quarantine at the time of testing positive. Active cases remain at 68, however none of these are currently being hospitalized.
The country remains at Alert Level 1, the lowest alert level for the virus. People in New Zealand are encouraged to wear face masks while using public transport, but under this alert level, there is no compulsion to wear face masks.
This relatively safe situation is in stark contrast to other parts of the world, such as Europe and the US. Contrary to New Zealand the numbers of new cases are spiking and there are fears that a second wave is well underway. Restrictions are already being re-imposed. The economic effects of this second wave are likely to be crippling to already fragile economies which had started to recover from the first wave of restrictions.
How New Zealand handled the outbreak
The New Zealand government acted firmly and swiftly early on during the outbreak, and this perhaps explains why the country registered low case numbers or even fatalities. At “only” 1,950 total cases and 25 fatalities, the country didn’t suffer a great deal on the human health side of the pandemic.
On the economic front, the New Zealand government also acted swiftly to cushion the country against the economic fallout triggered by the pandemic. Here are some of the specific measures that were instituted early on during the pandemic.
- A small business cash flow loan scheme was established to help affected but viable businesses remain operational. This money is to be paid back over 5 years, with a 2-year grace period.
- A leave support scheme was rolled out to help employers pay their workers who needed to self-isolate or those who were unable to perform their job responsibilities from home.
- The Reserve Bank slashed the OTR to 0.25 percent and cautioned banks to prepare for a negative OTR starting in December and through 2021.
- NZD 2.8 billion was made available for income support, and a winter energy payment was doubled for this year.
- NZD 600 million was availed as an initial support package to the aviation sector.
All these, and other related measures, have ensured that while the Covid effect on the NZD and economic effects of the pandemic have been severe, New Zealand’s economy was cushioned from a dramatic downward spiral for the economy and its currency. This is despite the heavy dependence of the country on dairy exports and the tourism industry.
How the NZD is faring against major currencies
The way the New Zealand government has handled the crisis and the Covid effect on the NZD, has helped the New Zealand Dollar remain strong in trading. This position has further been facilitated by the ongoing spikes in new cases in Europe and elsewhere.
The New Zealand Dollar hit a 10-year low vs. the US dollar in March, however has shown improvements since then. For example, the NZD has remained strong against the USD and the outlook is bullish for the kiwi in light of the feared second wave of the coronavirus in the US. The uncertainty over the effects of the coming US election has also helped to strengthen the kiwi against the greenback.
What’s more the crisis in the Eurozone has helped the NZD gain strength against the EUR. Mounting cases of the coronavirus have boosted fears of stringent restrictions being re-imposed, and that has dampened the recovery of the EUR against the NZD.
Additionally, the New Zealand Dollar and the Australian dollar are often regarded as proxies reflecting the strength of the Chinese renminbi (CNY). China has seen massive growth in recent years. Thus, it is not surprising that the NZD and AUD have been strong against the EUR and USD.
The NZD is known as a commodity currency, same as AUD and the CAD. A commodity currency moves in parallel with the global economy of primary commodity products like raw materials and natural resources. As mentioned earlier, in New Zealand a popular export is dairy.
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Does the reality on the ground support a strong NZD?
According to the weekly economic updates released by the New Zealand government, things are looking up for the country’s economy and the Covid effect on the NZD. The following are some indicators of recovery in the country.
- The annual trade surplus of the country continues to grow
- The number of people returning to work or finding new employment is growing
- Mobility reports indicate that people’s movements have returned to the levels which were recorded in January (before the outbreak)
- The people receiving income support are reducing
- Annual inflation figures are lower than had initially been projected
- Business activity and confidence figures are higher
While no currency or country can claim that it wasn’t adversely affected by the dramatic coronavirus pandemic, New Zealand and the NZD can claim one of the enviable spots available for countries that seem to have handled the crisis well. This is a country that shielded their economy as best they could from the brunt of this pandemic.
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