Kiwi dollar stays on traders' hot list

Photo / File

The New Zealand dollar remains the 10th most traded currency on the world's foreign exchange markets, according to a triennial survey by the Bank for International Settlements.

Trading in kiwi dollars averaged US$105 billion a day last April, just behind the Chinese renminbi at US$120 billion a day. The renminbi and the Mexican peso have joined the top 10 most traded currencies since the 2010 survey, displacing the Swedish krona and the Hong Kong dollar.

Trading the kiwi represents about 2 per cent of global foreign exchange turnover of US$5.3 trillion a day, up from US$4 trillion in the previous survey in 2010.

The turnover figures reflect liquidity, not the total amount at risk; the same money can change hands several times a day. But liquidity is valuable for currency sellers or buyers.

Just 0.2 per cent of global forex trading occurred in the New Zealand market, but that still amounted to a turnover of $12.4 billion a day. London is the largest centre, accounting for 41 per cent of global turnover.

Most of the trading in New Zealand dollars was in exchange for US dollars or vice versa - US$82 billion a day.

Nearly half of the NZ dollar trading was in foreign exchange swaps. These are transactions involving the exchange of two currencies on a specific date at an agreed rate and a reverse transaction of the same two currencies at a date further into the future, generally at a different rate agreed at the time of the contract.

They bet on the movement of the exchange rate in the interval.

Turnover on the local foreign exchange market was up 30 per cent on three years ago.

The Reserve Bank's head of financial markets, Mark Perry, said around two-thirds of the increase was because of the appreciation of the New Zealand dollar since then, as the survey measures turnover in US dollars.