NZD/CHF pair influencing factors

The currency pair NZD/CHF consists of the New Zealand Dollar (NZD) and the Swiss Franc (CHF). Switzerland uses the CHF as its official currency, while New Zealand uses the NZD. The CHF is the 7th most traded currency in the world, and the NZD is now at position ten as of May 2022. NZD/CHF is the tenth most traded currency pair globally. Because of its geographic location and robust economy, the NZD is quite popular. Since Switzerland’s economy is comparatively robust and favourable for storing financial assets, CHF is frequently chosen in trading.

The New Zealand dollar and the Swiss franc are both regarded as significant currencies. Nevertheless, the pair is a minor pair because it does not include the US dollar (USD). Compared to big currency pairs, minor currency pairs often have lower trading volumes and liquidity. They are also traded with spreads that are substantially broader. The New Zealand dollar is an extremely volatile, high-yielding currency, whereas the Swiss franc is a steady, low-yielding currency, hence the NZDCHF pair also offers carry trade potential.
Let’s also examine the historical significance of the New Zealand Dollar and Swiss Franc before learning what affects the NZD/CHF pair.

NZD/CHF currency pair: History

The Cook Islands, Niue, Tokelau, New Zealand, and the Pitcairn Islands all use the New Zealand dollar as their official currency. The decimalised currency was first used in 1967 to replace the complicated Sterling-denominated New Zealand pound. From the 1930s, the New Zealand pound had been accepted as a currency throughout the nation. Since the collapse of the Bretton Woods System, the New Zealand dollar has been allowed to freely float on the markets. The production and export of agricultural goods play a significant role in supporting New Zealand’s economy, making the NZD one of the commodity dollars in the FX markets.

The Swiss franc, on the other hand, emerged in 1850 and is still used as the main currency in Switzerland, Liechtenstein, and Campione d’Italia. The ‘Swissie’, as it is also known, is considered as a safe haven currency because of Switzerland’s stable economy and political neutrality. Switzerland is famous for promoting beneficial monetary policies and preserving low levels of debt, which has resulted in a relatively active and open economy. The fact that Switzerland has maintained its political neutrality while being located in an area that has historically seen several instances of violence for more than 500 years is quite notable.

The CHF improved its reputation as a safe haven when it kept a peg from the 1970s until 2000. By maintaining a peg from the 1970s until 2000, the CHF enhanced its credibility as a safe haven. When the European Central Bank began its policy of quantitative easing, the CHF’s link to the euro was broken in 2015. In addition to a robust manufacturing industry including watches, pharmaceuticals and food processing, Switzerland’s economy also benefits from a thriving services sector such as finance, banking, tourism, and commodities trading. The USA, China, and members of Europe make up the majority of the nation’s commercial relationships.

Factors influencing the NZD/CHF pair

The following are some things to watch out for while trading the NZD/CHF pair:

The Reserve Bank of New Zealand (RBNZ)

The RBNZ serves as New Zealand’s central bank. Its responsibility is to maintain New Zealand’s financial system and monetary environment. Every quarter, as well as seven times per year, the RBNZ publishes its monetary policy decisions and statements. Furthermore, the Bank releases Financial Stability Reports twice a year. The value of the NZD is frequently greatly impacted by these circumstances.

New Zealand Statistics

The responsibility for generating and distributing significant national statistics in New Zealand falls on the national statistics agency, known as Stats NZ. NZD traders keep an eye on the agency’s major statistics, including data on travel and tourism, the GDP, the unemployment rate, imports and exports and the consumer price index (CPI).

Bank of Switzerland (SNB)

The SNB, which serves as Switzerland’s central bank, is in charge of both pushing for low inflation and maintaining a stable exchange rate. Each year, the bank publishes its rates and monetary policy four times. But because the SNB is so involved in the markets, even events that happen outside of the anticipated times have a significant impact on the CHF.

Federal Statistics Office of Switzerland

The FSO, which serves as Switzerland’s national statistics office, is in charge of collecting and distributing accurate statistical data about the nation’s economy, demographics, and way of life. The agency’s core data, including the Consumer Price Index, Unemployment Rate, and Trade Balance, are closely monitored by CHF traders.

Why trade the NZD/CHF

The fact that New Zealand and Switzerland are from two very different locations makes them an interesting currency combination. This is because they bring distinctive trading circumstances from two separate corners of the world. Here are some reasons to trade the NZD/CHF pair:

Cross-currency pair

The NZD/CHF pair’s cross-currency status is one of the strongest reasons why trade the pair. It may significantly enhance the variety of assets you can trade in this market. Trading similar major currency pairs repeatedly might get old after a while as you will be monitoring the same market trends all day long. Trading cross-currency pairs though is comparable to travelling to a new country. You’ll learn how markets function without the USD. Additionally, you’ll be able to participate in cross-trades.

Predictability of the market

The NZD/CHF market environment is quite predictable. Any political, financial or significant events anywhere in the world tend to impact a pair that includes the USD because it is the default currency for international trade. Similar to how changes in any of the 28 countries that make up the European Union would impact a pair comprising the Euro. Therefore, it becomes hard to keep a close eye on every factor that can have an impact on a currency pair. Currency pairs that are just related to a specific region, like NZD/CHF, are much simpler to analyse since we only need to consider the countries involved.

Interest rates

The central bank of New Zealand is well-known for its high-interest rates. These are far higher than those of the US, UK, and Australia. Due to these high-interest rates and the substantial payouts they produce, traders are driven to the NZD/CHF currency pair. Switzerland has one of the lowest interest rates on the market, hence it offers high-interest yields. Due to the huge difference in interest rates between them, this combination offers potential advantages. When trading this currency pair, traders usually employ a carry trade which refers to selling a currency with a low-interest rate in order to buy one with a higher interest rate.

Disclaimer:

This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked, in this communication.