New Zealand dollar and agriculture

The New Zealand dollar, long considered a staple in the commodity currency sector, is highly sensitive to specific commodities. This is because New Zealand is a huge exporter of agricultural commodities to Asian countries, with a particular focus on China.

As one would expect, the New Zealand dollar will quite often move with specific exports. After all, if the Chinese are coming into purchase a lot of milk, then they will need to do so in New Zealand dollars. This creates a natural demand for the Kiwi dollar. By extension, if agricultural commodities are declining, this can put downward pressure on the New Zealand dollar as well.

There are a couple of ways that you can track how agricultural commodities are doing. You can go through each individual futures market, you can use an ETF, such as the MOO, which is an agricultural ETF issued by VanEck, or simply look for import and export numbers coming out of China, but that is a bit difficult to track.

On the attached chart, I have three lines. I have the blue line which is the New Zealand dollar versus the United States dollar, the orange line which is the MOO ETF, and the pink line which is the front month Milk III futures contract. You can see clearly that the New Zealand dollar tends to rise and fall with the ETF, as well as the milk contract, which of course makes a significant amount of sense considering that New Zealand export so much milk to Asia.

Granted, other things can move the New Zealand dollar, but all things being equal agricultural commodities will be a major portion of what influences the market. The better the Asian economy does, the more likely they are to buy more commodities from the Kiwis. Obviously, this works in both directions.

New Zealand dollar and agriculture