Spread Betting: Trading NZD/CHF
If you want to have a good idea about trading the New Zealand dollar versus the Swiss franc (NZD/CHF), then you need to first understand the way that these economies work. While most countries’ economies are fundamentally the same, there are some differences which can affect the currency value.
New Zealand is a tale of an evolving country. It had a special relationship with Great Britain for many years, perhaps most typified by “New Zealand lamb”, but this ceased when the UK joined the European common market in 1973. Its economy is still heavily based on agricultural exports including meat, wool, and dairy products, and it even sells milk powder to China, where the consumers are concerned about the food safety of local brands.
It is hard to appreciate the size of New Zealand’s agriculture, particularly as it is a relatively small country with just a couple of islands. But New Zealand now provides one third of all dairy exports in the world. Butter, cheese and milk are a quarter of all its exported merchandise. Australia is a large customer of New Zealand, and now, after many years of deficit, New Zealand has a trading surplus.
Another advantage for New Zealand is that it has the natural conditions that allow it to develop a large amount of hydroelectric power, and sizable natural gas deposits. These factors allow a reduced dependency on imported oil, with all the problems that creates.
Switzerland is well known for its stable economy, and although there are now alternatives has long been considered the banking country of the world, with the “Swiss bank account” typifying the idea of shifting money abroad to avoid domestic inquisitors. The economy is well regulated by the central bank, and unemployment is remarkably low. The Swiss use a number of “guest workers” from other countries, and it is not unknown for permits to be revoked when necessary to boost indigenous employment.
Agriculture is only possible on about 10% of the land, so Switzerland is not self-sufficient for food; natural resources such as minerals are also in short supply, so consequently most raw materials for manufacture must be imported. Power comes mainly from hydroelectric schemes and nuclear power plants.
But above all Switzerland is known for the high quality of its products, which include watches and precision instruments, machinery, and pharmaceutical products. More than 50% of the population is employed in other services, such as banking and financial work, and tourism which is a large industry.
Both New Zealand and Switzerland have well-founded and sound economies which allow them to make minor adjustments to keep business on the right track. Factors such as the low unemployment in Switzerland are advantages, but you must remember that this is already priced into the currency rates as it is pre-existing, and it is changes in basic numbers such as unemployment, gross domestic product, industrial production, and rates of inflation that will change the relationship between these currencies and others.
Spread Betting on the NZD/CHF
The New Zealand dollar vs. Swiss franc is a variable value, as you can see from the charts. While not especially volatile, it has sought many different levels in the past few years, and thus represents a good opportunity for spread betting over the intermediate term of a few weeks. The current spot price with IG Index is 7522.6 – 7556.6, and with the typical daily range being under 100 points you can see that the spread in this instance makes this currency pair less desirable for short-term betting.
If you think that the New Zealand dollar is going to strengthen against the Swiss franc, you would want to place a long bet on this Forex pairing, betting perhaps £2.50 per point. With a daily rolling bet you will be charged a small amount of interest each evening when the bet is rolled over, but this usually does not amount to much if the bet is closed within a few weeks.
Assume that after a few weeks the price has risen to 7853.2 – 7887.2, and you decide to close your bet and cash in your winnings. It is easy to work out how much you have won.
- Your long bet was placed at 7556.6
- Your bet closed at the selling price of 7853.2
- Therefore you have gained 7853.2 less 7556.6 points
- A total of 296.6 points
- Your bet was for £2.50 per point
- Multiplying together, you have won £741.50.
Instead of breaking out upwards, the price might have come down, and forced you to close your bet for a loss. Say it came down to 7486.1 – 7520.1, and you decided to cut your losses.
- Your long bet was placed at 7556.6
- Your bet closed at the selling price of 7486.1
- Therefore you have lost 7556.6-7486.1 points
- A total of 70.5 points
- Your bet was for £2.50 per point
- Multiplying together, you have lost £176.25.
As another example, perhaps you think that the Swiss franc is going to strengthen, or the New Zealand dollar will weaken in the next few weeks. That would mean that you need to place a short bet on this currency pair, choosing perhaps £5 per point which would be placed at the selling price of 7522.6.
If you are correct, the price may drop to 7315.8 – 7349.8, and you could close your bet and collect your profit. This time: –
- Your short bet was placed at 7522.6
- You closed your bet at 7349.8
- The difference in points is 7522.6-7349.8, which is 172.8
- Your bet was for £5 per point
- Therefore you won a total of £864.
Once again, you must consider the case where your bet does not work out, and you have to accept the loss. Say the price rose to 7562.3 – 7596.3 and you decided to close your bet.
- Your short bet was placed at 7522.6
- You closed your bet at 7596.3
- The difference in points is 7596.3 minus 7522.6, which is 73.7
- Your bet was for £5 per point
- Therefore you finished up losing £368.50.
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