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EUR/NZD: the ECB versus the RBNZ

The rate between the euro (EUR) and the New Zealand dollar (NZD) pits two very different economies against each other. Its dynamics depend first on the monetary policy gap between the European Central Bank (ECB) and the Reserve Bank of New Zealand (RBNZ) : when the RBNZ steers its rates above those of the euro area, the yield offered by the NZD tends to support it against the euro.

The New Zealand dollar is a so-called « cyclical » currency and sensitive to commodities. New Zealand's economy relies heavily on its agricultural and dairy exports : the strength of these prices, as well as Asian demand, strongly influences the NZD. Conversely, the euro plays the role of a major reserve currency and remains more stable, which gives the EUR/NZD pair marked volatility.

In practice, the NZD often rises when global risk appetite is high (optimistic markets) and falls during risk-aversion phases, when investors favour more defensive assets. Following the ECB calendar, the RBNZ calendar and the global risk climate all help to place the pair's trend before triggering an exchange.

Written by Brice Delhome.