Every three years the Bank for International Settlements carries out a survey of global foreign exchange. Not surprisingly the US$ remains unchallenged – foreign exchange deals with the US$ on one side of the transaction represented 87% of all deals. Remember because there are two sides to each transaction total trades add up to 200%.
The graph below shows the Daily Global FX Volume for 2013. The NZ$ is ranked the 10th most traded currency at 2%.
* two sides to each transaction total trades add up to 200%
Global daily volume = US$5345bn
Global daily volume of NZ$ (expressed at US$) = US$105bn
Relative to its GDP New Zealand has had a high FX turnover especially in recent years. According to Brian Gaynor in the New Zealand Herald there are several reasons for this:
1. A low savings rate in New Zealand means less money in bank and therefore higher interest rates. This attracts “Hot Money” seeking a higher yield which increases the demand for NZ$’s.
2. Most big companies in NZ are overseas owned (especially banks) and use swaps to reduce the foreign exchange risks.
3. NZ organisations are big borrowers on international markets and therefore have to exchange the loans into NZ$’s.
4. As international trade (exporters and importers) is a large part of the NZ economy there is a lot of activity on the FX market
5. Speculators are attracted to the NZ$ as NZ has open financial markets and the Reserve Bank of NZ has limited influence on its value.