AUD/NZD Trading Guide: How to Trade the AUDNZD FX Pair

Australia and New Zealand are geographically close neighbours with strong economic ties and a shared heritage, often referred to as the "Trans-Tasman bond".

Despite not being among the top economies by nominal GDP, the Australian dollar and the New Zealand dollar are recognised as two of the top 10 most traded currencies in the foreign exchange market (as of 2023).

Accordingly, this article provides insights into the characteristics of the AUDNZD forex pair, how to trade it and the factors affecting the price movement of its exchange rate.

Main Points:

• The AUD/NZD is the ticker symbol on trading platforms used to represent the exchange rate of the Australian dollar relative to the New Zealand dollar.
• The AUD/NZD is regarded as a minor pair in the forex market because it does not feature the US dollar.
• By trading AUD/NZD CFDs, traders can gain exposure to the price movements of the AUD/NZD exchange rate without ownership of either currency.
• Factors affecting the price movement of AUDNZD include central bank policies, commodity prices and important economic data releases from Australia and New Zealand.

The History of the AUDNZD (Australian Dollar and New Zealand Dollar)

History of the Australian Dollar

Before the Australian colonies united as a federation in 1901, each colony operated with its distinct currency. In 1910, the Australian pound (A£) became the standard currency across Australia until 1966, when the decimal currency system was implemented under the leadership of Prime Minister Menzies. This led to the establishment of the Australian dollar by the Reserve Bank of Australia (RBA), which replaced the Australian pound.

History of the New Zealand Dollar

The New Zealand dollar is a relatively recent addition to the financial markets. From 1840 to 1967, the New Zealand pound served as the country's official currency. After considerable discussion and debate, the New Zealand Parliament decided to adopt a decimal currency system which was enacted into law by the 1964 Decimal Currency Act. This legislation established the New Zealand dollar as the official currency of New Zealand.

Understanding the Australian Dollar - New Zealand Dollar Currency Pair

The Australian dollar and New Zealand dollar are both regarded as Australasian currencies due to the shared heritage of their regions. They play similar roles in international trade and their economies thrive on commodity exports and tourism. As of 2023, China and the United States (the two biggest economies in the world) continue to be the largest trading partners with both Australia and New Zealand.

What Is the Australian Dollar?

• The Australian dollar is the legal tender for transactions throughout Australia, its external territories, and neighbouring Pacific Island states.
• It is issued by the Reserve Bank of Australia (RBA).
• It is symbolised by ‘A$’ and abbreviated as ‘AUD’.
• In foreign exchange markets, the Australian dollar is popularly called “the Aussie."
• The Aussie is regarded as a commodity currency because its value is mostly derived from mineral exports.
• In terms of trading volume in 2023, the Australian dollar ranked sixth among the world's most-traded currencies

What Is the New Zealand Dollar?

• The New Zealand dollar is the legal tender for transactions throughout New Zealand, its external territories and neighbouring Island states.
• It is issued by the Reserve Bank of New Zealand (RBNZ).
• The currency is symbolised by “$NZ” or “NZ$” and further abbreviated as ‘NZD’.
• In foreign exchange markets, the New Zealand dollar is popularly called "Kiwi".
• Kiwi derives most of its value from agricultural export and tourism hence it is regarded as a commodity currency.
• In terms of trading volume in 2023, the New Zealand dollar ranked 10th among the world's most-traded currencies

Characteristics of the AUDNZD Currency Pair

• The AUDNZD currency pair comprises two Australasian currencies, the Australian dollar (AUD) and the New Zealand dollar (NZD).
• AUDNZD is regarded as a cross or minor forex pair because it excludes the US dollar.
• Based on available data in June 2024, the AUDNZD currency pair has a low volatility rating of 0.23%. Although volatility ratings are subject to change.
• As of 2024, the AUDNZD currency pair ranks 14th among the most traded forex pairs and accounts for 0.96% of total FX turnover.
• Local economic factors play a more significant role in shaping the AUD/NZD exchange rate compared to external global factors.

What Is AUD/NZD Trading?

AUDNZD is the ticker symbol for the exchange rate between the Aussie dollar (AUD) and the Kiwi dollar (NZD). It tells you exactly how much New Zealand dollar (quote currency) you'll receive for one unit of Australian dollar (base currency).

The AUD/NZD exchange rate isn't fixed but continuously adjusts due to market forces and the relative strength of each currency. This presents opportunities for traders to open either long or short positions on the AUD/NZD exchange rate.

Going Long vs Going Short on the AUD/NZD

• A long position on AUDNZD implies that you anticipate the Australian dollar (AUD) to appreciate in value relative to the New Zealand dollar (NZD).
• A short position on AUDNZD implies that you anticipate the Australian dollar (AUD) to depreciate in value relative to the New Zealand dollar (NZD).

Therefore, it is important to understand the factors influencing the value of the Australian dollar and the New Zealand dollar in the forex market.

What Driving Factors Affect the AUD/NZD Exchange Rates?

Major factors affecting the AUDNZD exchange rate include the following:

Australia and New Zealand Monetary Policies

The Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) are responsible for monetary policy decisions in both Australia and New Zealand. The RBA typically communicates its policy decisions monthly while the RBNZ releases its monetary policy decisions and statements every six weeks. Any announcement or adjustment in interest rates by either central bank can significantly influence the AUDNZD exchange rate.

Australia and New Zealand Economic Reports

Major macroeconomic reports concerning Australia and New Zealand are published by their national statistical agency, the Australian Statistics Bureau (ABS) or the New Zealand Statistical Agency (Stats NZ). Major examples of such data releases that can influence the AUDNZD exchange rate are employment data, the Business Confidence Index (BCI), the Consumer Price Index (CPI), and Gross Domestic Product (GDP).

Commodity Supply and Demand

In Australia, the mining industry dominates Australia’s exports. This includes the mining of iron ore, coal, gold and natural gas. Meanwhile, agricultural exports of dairy and crop products dominate the New Zealand economy. As such, any increase or decrease in the demand for these commodities can have a direct impact on the AUD/NZD exchange rate.

How to Trade AUDNZD CFDs

AUDNZD CFDs offer traders the opportunity to speculate on the price movements of the AUDNZD exchange rate without owning either the Australian dollar or the New Zealand dollar. By trading contracts for differences (CFDs) on the AUDNZD exchange rate, traders can gain exposure from the difference between the price points where they open and close their positions. CFD trading comes with the leverage, which can amplify gains. However, it is important to recognise that leverage can equally magnify losses.

Steps to Buying and Selling AUDNZD CFDs With Plus500

To trade AUDNZD CFDs, you can take the following steps:

1. Begin by setting up either a demo or a real trading account.
2. Access the trading platform on desktop or mobile.
3. Locate and choose the ‘AUDNZD’ from the ‘Forex - Minor’ section in the instruments menu.
4. Analyse AUDNZD price action to choose whether to take a long position (buy) or a short position (sell).
5. Determine your desired contract size and set up your risk management parameters.
6. Click the "Place Order" button to confirm your trade.

Trading Hours for AUDNZD CFDs

The forex market operates 24 hours a day, five days a week, allowing traders to access AUDNZD CFDs at any time. Plus500 typically offers AUDNZD CFDs with continuous trading hours, starting on Sunday at 10:00 PM CET until Friday at 10:00 PM CET. Hence, traders can track AUDNZD price movement in real time and trade the AUDNZD CFDs directly from the Plus500 App or WebTrader platform.

*Please note that trading platform hours depend on the individual operator.

The Pros and Cons of Trading AUDNZD

Despite the potential benefits of trading AUDNZD, it is important to be cautious of the possible drawbacks. With that said, the benefits and risks of trading the AUDNZD are given as follows:

The Benefits of Trading AUDNZD

• The AUDNZD pair is known for its distinct price swings, providing traders with actionable insights to make informed decisions.
• Though not as volatile as AUDUSD or NZDJPY, the AUDNZD pair still exhibits sufficient volatility with meaningful price movements.
• News reports for the Aussie and Kiwi are often released in the Asian session, the early trading hours of the day. This gives traders enough time to enter trades and adjust positions if needed.

The Risks of Trading AUDNZD

• AUDNZD has lower liquidity than major forex pairs which can result in wider bid-ask spreads and increased trading cost
• Traders may experience frequent slippage (unfilled orders) due to liquidity constraints.
• Using leverage to trade AUDNZD can magnify potential profits but also increases the potential for significant financial loss.
• The early hours of the Asian trading session may be less ideal for traders located in other regions, impacting their ability to trade AUDNZD effectively.

AUDNZD Trading Strategies

Several forex trading strategies can be employed when trading the AUDNZD currency pair using technical analysis and fundamental analysis:

AUDNZD Trend Trading

The core of this strategy is to utilise technical tools such as moving averages and trendlines to spot the current tide (upward/downward) of the AUDNZD exchange rate. If AUDNZD consistently reaches new highs, it confirms an uptrend therefore traders may buy AUDNZD to capitalise on the upward price moves. In contrast, if AUDNZD consistently makes new lows, traders may open short positions to profit from the downward price movement.

AUDNZD Range Trading

When AUDNZD price movement does not make new highs nor new lows but stays within a defined level of support and resistance. This establishes a range-bound market where traders can buy low, at the support level of the range or sell from the resistance level at the top of the range.

AUDNZD Carry Trade Strategy

This strategy is based on the interest rate difference between the Central Bank of Australia and New Zealand. If the Reserve Bank of Australia (RBA) has a higher interest rate than the Reserve Bank of New Zealand (RBNZ), traders can buy the AUDNZD to profit from the Aussie and Kiwi yield difference. Conversely, if the Reserve Bank of Australia (RBA) has a higher interest rate than the Reserve Bank of New Zealand (RBNZ), traders can sell the AUDNZD pair to profit from the yield difference.

AUDNZD Position Trading Strategy

In AUDNZD position trading, traders hold long or short positions for a prolonged duration, typically from weeks to several months. This strategy prioritises longer-term trends over short-term price movements. Given the tendency of AUDNZD to trend for longer periods, traders may find position trading more conducive to their trading strategies.

Conclusion

The AUD/NZD currency pair offers traders an opportunity to gain exposure to fluctuations in the exchange rates between the Australasian currencies, the Australian dollar (A$) and the New Zealand dollar (A$). Trading the AUDNZD pair requires understanding its characteristics as a commodity currency pair, including the key factors influencing its exchange rate. Utilising this information, along with implementing the right trading strategies and guidelines, is essential for traders aiming to capitalise on the price movements of the AUDNZD pair while also recognising the inherent risks.

Frequently Asked Questions (FAQs)

What Correlates with AUDNZD?

As of June 2024, AUDNZD is strongly positively correlated to EURNZD, GBPNZD, and EURGBP and negatively correlated to Silver (XAG), NZDCAD, NZDUSD, and GBPCAD. However, it is important to note that asset correlation is always subject to changes.

Is the AUDNZD an Exotic Pair?

AUDNZD is considered a minor pair, not an exotic pair. Minor pairs feature two major currencies such as the Australian dollar (Aussie) and the New Zealand dollar (Kiwi) but it does not include the US dollar.

When Is AUDNZD Most Volatile?

AUDNZD market volatility tends to increase during session overlaps. For instance, the market volatility for AUDNZD usually increases during the overlap of the Tokyo session with the opening of the London session. This can lead to increased liquidity and narrower spreads.