New Zealand Dollar (NZD): Understanding the Kiwi Currency

Economic

Summary:

Dive deep into the New Zealand Dollar (NZD). Explore its history, uses, factors affecting its value, and future prospects. Learn how the "Kiwi" plays a role on the global stage.

The New Zealand dollar (NZD), often nicknamed the "Kiwi" after the iconic flightless bird gracing its coin, is a significant player in the foreign exchange market. This article delves into the history, uses, and future prospects of the New Zealand dollar, equipping you with a comprehensive understanding of this dynamic currency.

A Brief History

New Zealand adopted the dollar in 1967, replacing the New Zealand pound. This move aligned the country with the growing trend of dollarization and facilitated international trade. The NZD has since become a respected global currency, particularly within the Oceania region.

Composition and Uses

The NZD is subdivided into 100 cents and comes in denominations of coins (10c, 20c, 50c, $1, and $2) and polymer banknotes ($5, $10, $20, $50, and $100). New Zealand boasts a vibrant cash economy, but digital payments are increasingly prevalent. Beyond its domestic use, the NZD plays a crucial role in:

International Trade: New Zealand is a major exporter of agricultural products like dairy and kiwifruit. The NZD serves as the settlement currency for many of these transactions.

Tourism: New Zealand is a popular tourist destination, attracting visitors from around the world. Tourists exchange their currencies for NZD to spend during their travels.

Foreign Investment: New Zealand's stable economy attracts foreign investment. The NZD facilitates these investments.

Carry Trade: The NZD can be a part of carry trade strategies, where investors borrow in low-interest-rate currencies and invest in higher-interest-rate currencies like the NZD to pocket the interest rate differential.

Factors Affecting the NZD's Value

The value of the NZD fluctuates based on various factors, including:

Interest Rates: Higher interest rates in New Zealand relative to other countries can attract foreign investment, leading to a stronger NZD.

Commodity Prices: As New Zealand is a major commodity exporter, fluctuations in global commodity prices, particularly dairy prices, can impact the NZD's value.

Global Risk Aversion: During periods of global economic uncertainty, investors often flock to safe-haven currencies like the US dollar (USD). This can weaken the NZD.

New Zealand's Economic Performance: A strong New Zealand economy with robust growth can bolster the NZD.

The Future of the NZD

Predicting the future of any currency is inherently challenging. However, several factors could influence the NZD's trajectory:

Global Economic Growth: Strong global economic growth can benefit the NZD, particularly if it fuels demand for New Zealand's exports.

Monetary Policy: The Reserve Bank of New Zealand's (RBNZ) interest rate decisions will significantly impact the NZD's attractiveness to investors.

Innovation and Diversification: New Zealand's ability to diversify its economy beyond traditional exports could strengthen the NZD in the long run.Trading the NZD:

The NZD is actively traded on the foreign exchange market (forex) 24/7. Retail investors can access the NZD through forex brokers, offering opportunities for speculation or hedging currency risk. However, forex trading is complex and carries significant risk.

Conclusion

The New Zealand dollar is a dynamic currency with a rich history and a significant role in the global financial system. Understanding the factors influencing its value and its future prospects can be valuable for international businesses, investors, and anyone with an interest in the economic landscape of New Zealand. Remember, conducting thorough research and consulting with a financial professional is crucial before making any currency-related decisions.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

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Glendon

Economic

Small-cap exchange-traded funds (ETFs) offer a compelling proposition for investors seeking diversification and high-growth potential. These ETFs bundle a basket of stocks from companies with a market capitalization typically ranging from $300 million to $2 billion. While inherently riskier than their large-cap counterparts, small-cap stocks offer the chance for explosive growth, potentially outpacing the broader market. This article explores some of the top small-cap ETFs to consider for your investment portfolio.

Growth Potential and Diversification

Small-cap companies are often young, innovative, and less susceptible to economic downturns compared to established giants. They can quickly adapt to changing market dynamics and disrupt established industries. By including a small-cap ETF in your portfolio, you gain exposure to this exciting segment and potentially boost your returns. However, remember, greater growth potential comes with increased volatility.

Exploring Top Contenders

Here's a breakdown of some of the most popular and well-performing small-cap ETFs as of May 7th, 2024:

iShares Core S&P Small-Cap ETF (IJR): This ETF tracks the S&P SmallCap 600 Index, providing broad exposure to the U.S. small-cap market. It boasts a low expense ratio of 0.20%, making it a cost-effective option for investors.

Schwab Fundamental U.S. Small Company ETF (FNDA): This ETF uses a fundamental weighting methodology, favoring companies with strong profitability, cash flow, and growth potential. This strategy aims to outperform the broader small-cap market while managing risk.

Avantis U.S. Small Cap Value ETF (AVUV): This ETF focuses on small-cap stocks considered undervalued based on metrics like price-to-book ratio. Value investing seeks to buy stocks trading for less than their intrinsic worth, potentially leading to higher returns in the long run. However, value stocks can underperform during growth spurts in the market.

Pacer US Small Cap Cash Cows 100 ETF (CALF): This unique ETF targets small-cap companies generating significant free cash flow, indicating financial strength and the potential for future dividend payouts. CALF offers a niche exposure within the small-cap universe, catering to income-oriented investors.

Invesco S&P SmallCap Momentum ETF (XSMO): This ETF tracks an index of small-cap stocks exhibiting strong momentum, meaning their stock prices have been rising rapidly. Momentum investing aims to capitalize on this upward trend, but be aware that momentum can fizzle out, leading to potential losses.

Choosing the Right Small-Cap ETF

The "best" small-cap ETF depends on your individual investment goals and risk tolerance. Consider these factors when making your selection:

Investment Style: Do you prefer broad market exposure (iShares Core S&P Small-Cap), value investing (Avantis U.S. Small Cap Value), or a focus on income generation (Pacer US Small Cap Cash Cows)?

Expense Ratio: Lower expense ratios mean you keep more of your returns.

Holdings and Weightings: Research the specific companies within the ETF and their weighting to understand the exposure you're getting.

Beyond the Basics

Remember, small-cap ETFs are not a guaranteed path to riches. Conduct thorough research, understand the inherent risks, and consider your investment timeline before investing.

Here are some additional points to ponder:

Market Conditions: Small-cap stocks tend to be more volatile than large-cap stocks, particularly during economic downturns.Rebalancing: Small-cap allocations within your portfolio should be regularly reviewed and rebalanced to maintain your desired asset allocation.

Conclusion

Small-cap ETFs offer a compelling option for investors seeking growth and diversification. By carefully considering your investment goals and risk tolerance, you can select a small-cap ETF that aligns with your overall financial strategy. Remember, investing is a marathon, not a sprint. Stay focused on your long-term goals and make informed decisions to navigate the exciting, yet volatile, world of small-cap stocks.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Alex

Political

The Senate voted to send a foreign aid package that includes sanctions on Iran’s oil sector to President Joe Biden, who has said he will sign the legislation into law.

The bill, which was approved on Tuesday night by a vote of 79-18, would broaden sanctions to include foreign ports, vessels and refineries that knowingly process or ship Iranian crude in violation of existing US sanctions. It also would expand so-called secondary sanctions to cover all transactions between Chinese financial institutions and sanctioned Iranian banks used to purchase petroleum and oil-derived products.

The legislation also included assistance for Ukraine, Israel and Taiwan.

The measure would require an annual determination as to whether Chinese financial institutions have engaged in conduct that violates sanctionable conduct, according to a report by the House Financial Services Committee, which said 80% of Iran’s roughly 1.5 million barrel per day of exports go to China to be refined by small independent refineries known as “teapots.”

Analysts said Biden is likely to take advantage of waiver authority built into the sanctions and could opt to avoid stringent enforcement of the sanctions, which could contribute to a rise in oil and gasoline prices.

“Our take is that President Biden will use any flexibility afforded him to ensure no material disruption in Iranian crude oil takes place before the election,” said Bob McNally, president of consultant Rapidan Energy Group and a former White House official “There is no higher priority for the White House than preventing an oil price spike this year.”

A person familiar with the matter said the administration is analyzing the legislation, but no impact on oil markets is expected before the fall.

The political calculus on waiving the sanctions could change if Iran is perceived as renewing its aggression toward Israel or continuing work on a nuclear weapon, Kevin Book, managing director for ClearView Energy Partners LLC, a Washington consulting firm, said in an interview. ClearView has said the sanctions could add as much as $8.40 a barrel to global prices.

Oil trade involving independent refineries is hard to stop because the companies don’t have a nexus to the US financial system, said Ben Cahill, a senior fellow, with the Center for Strategic and International Studies, a Washington think tank.

“Sanctions leverage is limited,” Cahill said in an email. “The key question is how tough the White House will be on sanctions enforcement in an election year.”

Source:Bloomberg

Risk Warnings and Disclaimers

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ING

Economic

Finally, Germany appears to be at a cyclical turning point. Its most prominent leading indicator, the Ifo index, has added to recent evidence of a bottoming out of the German economy. In April, the index increased for the third month in a row to 89.4, from 87.9 in March. Judging from previous experience, three consecutive increases tend to mark a turning point in the economy. Today’s increase was driven by both the improved current assessment and expectations' components. The Ifo headline index is now back to levels last seen in the early summer of last year, illustrating the return of optimism.

Speed of cyclical improvement limited by structural challenges

The cycle has started to turn for the better. Today’s Ifo index provides further evidence of a bottoming out of the German economy. Hard data for the first two months of the quarter already suggested it could have left recession behind earlier than expected. Strong activity in the construction sector on the back of mild winter weather and a technical rebound in trade and industrial production should have offset still weak private consumption. This cyclical upswing looks set to continue in the second quarter.

However, let’s not forget that several cyclical factors are still dragging down economic activity. Higher oil prices as a result of the military conflict between Iran and Israel, as well as the ongoing tensions in the Red Sea, are likely to weigh on industry and exports once again. Also, the increasing number of insolvencies and individual company announcements of upcoming job restructurings fuel the risk of a weakening labour market this year. Finally, besides the potential cyclical headwinds, Germany’s well-known structural weaknesses will not disappear overnight and will limit the speed of any rebound this year.

All in all, today’s Ifo index brings back more optimism for the German economy. The cyclical trough is behind us, but this doesn’t necessarily mean that a strong recovery is imminent as structural weaknesses remain. A new risk of this cyclical improvement could be that it gives rise to policy complacency.

To stay updated on all economic events of today, please check out our Economic calendar

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Alex

Economic

Political

Russia-Ukraine Conflict

The Senate passed a long-delayed $95 billion emergency aid package for Ukraine and other besieged US allies, clearing the way for resumed arms shipments to Kyiv within days.

The Defense Department is prepared to swiftly move artillery shells and air defense munitions as part of an initial $1 billion tranche of new aid, US officials said. President Joe Biden is expected to quickly sign the assistance package and the US can tap supplies already in Europe to expedite the help.

Painful shortages in weapons, along with a dire need for more air defense systems, have pushed Ukraine’s fighting forces close to a breaking point, raising the risk of a Russian breakthrough more than two years after the invasion began.

Biden, in a statement shortly after the vote, said he planned to sign the legislation on Wednesday “as soon as it reaches my desk” — and address the American public.

The popular TikTok social media app also faces a US ban under the legislation unless Bytedance Ltd divests within 360 days, a provision the China-based corporate parent says it will fight in US courts.

The 79-18 Senate vote on Tuesday night ended a congressional impasse over aid Biden requested six months ago, a delay that has highlighted growing isolationism in the Republican Party and undermined the credibility of US global strategic commitments.

“Better late than never,” said Senate Republican leader Mitch McConnell, who backed the assistance package. “We don’t have to give up on Ukraine, and we’re not going to.”

Senate Majority Leader Chuck Schumer said in a post on X that “Tonight, we make Vladimir Putin regret the day he questioned America’s resolve.”

Ukrainian President Volodymyr Zelenskiy, on X, expressed gratitude to Schumer, McConnell and the Senate.

Senate approval of the package was a foregone conclusion after the House overwhelmingly approved the bill on a 311 to 112 bipartisan vote. Speaker Mike Johnson pressed forward with legislation even though a majority of lawmakers in his own Republican party opposed it.

The $61 billion for Ukraine includes $13 billion to replenish US stockpiles for weapons already provided and $14 billion for US-made defense systems to be given to Ukraine. It also has $7 billion for US military operations in the region. The bill’s $9.5 billion in economic assistance to Ukraine comes in the form of a loan that the president can fully forgive after the next election.

The loan idea was first floated by Donald Trump, the presumptive Republican presidential nominee, and was a key tweak to the legislation made by House GOP leaders.

That bill also includes aid for Israel and Taiwan. It allows the confiscation of Russian dollar assets to help fund assistance to Ukraine.

Source:Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

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Cohen

Economic

Bank Indonesia raised its benchmark interest rate to a record high, in what’s seen as a one-and-done move to support the rupiah that hit pandemic-era lows.

The central bank increased the BI-Rate by 25 basis points to 6.25% on Wednesday, a move predicted by only 11 of 41 economists surveyed by Bloomberg. The rest had expected no change.

The current conditions require a strong policy response to mitigate risks to the Indonesian economy, Governor Perry Warjiyo said in a virtual briefing. He was referring to uncertainties from a delay to the anticipated monetary easing by the Federal Reserve and rising geopolitical tensions in the Middle East.

Indonesia Hikes Rate To Lift Rupiah From Pandemic-era Lows_1

The decision, which lifts the rate to a new high since the benchmark was introduced in 2016, is aimed at supporting the local currency that’s lost nearly 5% against the dollar this year. The BI has a mandate to stabilize the rupiah and through it manage inflation.

While price-growth has been within the central bank’s 1.5%-3.5% goal this year, a weaker rupiah risks fanning inflation by making imports more expensive. The hike could set the tone for other Emerging Asian central banks that are seeing their currencies hammered by a strong dollar, with geopolitical tensions adding a new layer of risk.

The central bank is confident that headline inflation will stay within target this year and the next, the governor said.

The rupiah extended an earlier gain after the decision, trading 0.5% higher at 16,145 per dollar amid broad greenback weakness. The move trims the rupiah’s slump this month to 1.8%, the third worst performer in Asia as it succumbs to dollar strength spurred by expectations the Fed may delay cutting rates as well as high seasonal demand for the greenback.

The local currency still remains among the region’s worst performers so far in April, after dropping past the 16,000 per dollar psychological level last week — to its weakest since April 2020.

BI has made it “clear that supporting the currency would remain its key priority over the coming months,” according to Capital Economics. This hike, however, shouldn’t be read as a signal for the start of a prolonged hiking cycle, given inflation is very low and growth is struggling.

The central bank sees 2024 economic output to grow between 4.7%-5.5%.

Foreign funds have sold a net $583 million in Indonesian government bonds so far during the month.

That’s spurred Bank Indonesia to intervene “more boldly” in the spot and derivatives markets to moderate sharp swings in the exchange rate. It’s also offered hefty premiums on its rupiah securities to lure more foreign inflows. Beyond the central bank, the government has also ordered state-owned enterprises to refrain from making large dollar purchases and told exporters to repatriate their earnings.

The nation’s foreign exchange reserves are sufficient to support stabilization of the rupiah, Warjiyo said. Policymakers will also optimize use of other tools to steady the currency.

Lingering currency volatility will likely push back Bank Indonesia’s pivot to easing possibly to 2025, according to some economists polled by Bloomberg.

Source:Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

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Ukadike Micheal

Economic

Forex

In February, retail sales in Canada experienced a marginal decline of 0.1%, amounting to a total of $66.7 billion. This slight decrease was primarily driven by a notable drop in sales at gasoline stations and fuel vendors, which saw a decrease of 2.2%. Core retail sales, which exclude certain sectors such as gasoline stations, fuel vendors, and motor vehicle dealers, remained unchanged during the same period. However, in terms of volume, retail sales decreased by 0.3%, reflecting a decline in consumer spending.

The decline in sales at gasoline stations and fuel vendors can be attributed to various factors, including fluctuations in fuel prices and changes in consumer behavior. Factors such as reduced travel due to pandemic-related restrictions and shifts towards remote work may have contributed to decreased demand for fuel during this period. Additionally, global trends in oil markets and geopolitical tensions could have also influenced fuel prices and, consequently, sales at gasoline stations.

Conversely, sales at motor vehicle and parts dealers saw a slight increase of 0.5% in February, following a decline in January. This uptick in sales may be attributed to factors such as pent-up demand, incentives offered by manufacturers, and the release of new vehicle models. However, it's essential to note that the overall increase was tempered by lower sales at automotive parts, accessories, and tire retailers, indicating potential challenges within the automotive aftermarket sector.

Core retail sales, which provide a more accurate reflection of consumer spending trends, remained unchanged from January. While certain sectors, such as general merchandise retailers, reported higher receipts, others experienced declines. For instance, sales at furniture, home furnishings, electronics, and appliances retailers saw a notable decrease of 1.5%, possibly reflecting changes in consumer preferences or economic conditions.

The provincial breakdown of retail sales reveals varying trends across different regions of Canada. Seven provinces witnessed a decrease in retail sales in February, with Alberta experiencing the largest decline of 1.1%. In contrast, British Columbia saw the largest provincial increase of 1.2%, driven by higher sales at motor vehicle and parts dealers. These regional variations underscore the diverse economic landscapes within Canada and the importance of considering local factors when analyzing retail trends.

In terms of retail e-commerce sales, there was a notable increase of 1.9% to $3.8 billion in February. This growth highlights the ongoing shift towards online shopping, driven by factors such as convenience, accessibility, and changing consumer preferences. The rise in e-commerce sales underscores the need for retailers to invest in digital infrastructure and omnichannel strategies to remain competitive in today's retail landscape.

Looking ahead, Statistics Canada provided an advance estimate of retail sales for March, suggesting that sales remained unchanged during the month. However, given the preliminary nature of this estimate, it is subject to revision. Nevertheless, it provides valuable insights into the ongoing trends in consumer spending and retail activity in Canada.

Overall, the fluctuations in retail sales reflect the dynamic nature of the Canadian economy and consumer behavior. While certain sectors may experience challenges, others demonstrate resilience and opportunities for growth. By closely monitoring retail trends and adapting strategies accordingly, businesses can navigate uncertainties and capitalize on emerging opportunities in the retail market.